Suppose you own a portfolio consisting of $250,000 of long-term U.S. government

Question

Suppose you own a portfolio consisting of $250,000 of long-term U.S. government bonds.

1. Would your portfolio be riskless? Explain.

2. Now suppose the portfolio consists of $250,000 of 30-day Treasury bills. Every 30 days your bills mature, and you will reinvest the principal ($250,000) in a new batch of bills. You plan to live on the investment income from your portfolio, and you want to maintain a constant standard of living. Is the T-bill portfolio truly riskless? Explain.

3. What is the least risky security you can think of? Explain.

Explanation / Answer

Ans1. Since US Doller are backed by U.S Government and US is the powerful country in Finance as well therefore portfolio consisting $250,000 of Long-term government is riskless portfolio.

Ans2.T-Bill or Treasury bill are the bill governed under U.S. Government. T-Bill carry almost Zero percent of Risk. even at the time of crisis the goverment has the authority to make money to pay its debt. therefore to live on the investment income from your portfolio and to maintain constant standard of living, T-Bill are truly riskless.

Ans.3 Least risky security are those security which has lesser chances of money loss of invester.

T-Bill can be a least risky asset since it is governed by US goverment and even at the time of crisis US government has the power to ask for the tax and to make money to pay its debt.

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