When do T-bill investors receive their interest?

When do T-bill investors receive their interest?

• A. Monthly
• B. Annually
• C. At maturity or redemption
• D. Quarterly

Answer: (C)

T-bill investors receive their interest at maturity or redemption, which occurs when the T-bill reaches its predetermined maturity date. This is because Treasury bills (T-bills) are sold at a discount to their face value, and the difference between the purchase price and the face value represents the interest earned by the investor. For example, if an investor buys a T-bill with a face value of $1,000 for $980, the $20 difference will be collected when the T-bill matures. This structure aligns with the nature of T-bills as short-term debt instruments typically maturing in a few weeks to a year. Hence, investors do not receive periodic interest payments like they would with other securities; instead, they receive a lump sum at maturity, which encapsulates the interest earned. This feature is important for investors who prefer the simplicity and low risk associated with T-bills.

T-bill investors receive their interest at maturity or redemption, which occurs when the T-bill reaches its predetermined maturity date. This is because Treasury bills (T-bills) are sold at a discount to their face value, and the difference between the purchase price and the face value represents the interest earned by the investor.

For example, if an investor buys a T-bill with a face value of $1,000 for $980, the $20 difference will be collected when the T-bill matures. This structure aligns with the nature of T-bills as short-term debt instruments typically maturing in a few weeks to a year. Hence, investors do not receive periodic interest payments like they would with other securities; instead, they receive a lump sum at maturity, which encapsulates the interest earned. This feature is important for investors who prefer the simplicity and low risk associated with T-bills.