SOFA-CFE · Question #80
The bills that are sold at a discount to face value to yield the market rate over their life are called:
The correct answer is B. Treasury bills. Treasury bills (T-bills) are short-term government debt instruments issued at a discount to their face value - investors pay less than face value upfront and receive the full face value at maturity, with the difference representing their return. This discount pricing mechanism…
Question
The bills that are sold at a discount to face value to yield the market rate over their life are called:
Options
- ACapital bills
- BTreasury bills
- CCollateralized bills
- DSubsidiary bills
How the community answered
(30 responses)- A7% (2)
- B80% (24)
- C10% (3)
- D3% (1)
Explanation
Treasury bills (T-bills) are short-term government debt instruments issued at a discount to their face value - investors pay less than face value upfront and receive the full face value at maturity, with the difference representing their return. This discount pricing mechanism is precisely how T-bills "yield the market rate over their life."
Why the distractors are wrong:
- A. Capital bills - not a real financial instrument category; "capital" describes long-term funding, not a specific bill type.
- C. Collateralized bills - would imply backing by specific assets (like mortgage-backed securities), which T-bills are not; they're backed by the full faith and credit of the government.
- D. Subsidiary bills - not a recognized financial term; "subsidiary" refers to corporate ownership structures, not debt instruments.
Memory tip: Think T for Treasury, T for Time-discounted - T-bills are the government's short-term IOUs where you pay less today to get full face value tomorrow, with the discount doing the work of interest.
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