Math in the News: 8/22/11
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Math in the News: 8/22/11

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In this issue of Math in the News we look at Treasury Bonds, Notes, and other securities, since these are primary means that the U.S. govt. uses to raise cash. ...

In this issue of Math in the News we look at Treasury Bonds, Notes, and other securities, since these are primary means that the U.S. govt. uses to raise cash.

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Math in the News: 8/22/11 Presentation Transcript

  • 1. 8/22/11
  • 2. Treasury Bonds
    To generate cash the U.S. Treasury Dept. prints and sells Treasury Bills, Bonds, and other similar types of notes.
  • 3. Treasury Bonds
    Purchasing a Treasury Note means that you are lending money to the U.S. government. In exchange, the government will pay you back the money with interest.
  • 4. Treasury Bonds
    This is how a Treasury Note works.
    The government will issue a note with a face value of $1000.
    Your cost for the note is less than $1000, e.g., $990.
    When the note matures, the government pays you $1000.
    The interest you earn is the difference between the $1000 and the price you paid.
    Face value: $1000
    Your cost:
    <$1000
  • 5. Treasury Bonds
    The amount of time needed to earn back the money paid and interest is known as the Maturity.
    Treasury Bills can have Maturities of 3 months or 6 months.
    To calculate the interest earned, use this formula.
    FV = Face Value of the Note
    PP = Purchase Price of the Note
    M = Maturity
  • 6. Treasury Bonds
    The Treasury Dept. auctions Treasury securities several times throughout the year. These include:
    T Bills
    Treasury Notes
    Treasury Bonds
    TIPS
    This table shows the results of a recent Treasury auction.
    Let’s look at a 13- week T Bill.
  • 7. Treasury Bonds
    Using the interest formula, we find that the interest on the T Bill is 0.035%.
    This is not a very high percent. Why is it so low?
    FV = $1000
    PP = $999.91
    M = Maturity
  • 8. Treasury Bonds
    In fact, the yield on all Treasury securities varies. This chart shows the change in 3-month T Bills from 2007 to 2011.
    Note how the interest rates have significantly decreased.
    This reflects the slowdown in the U.S. economy over the past few years.
  • 9. Treasury Bonds
    Treasury securities are still a good investment for a number of reasons:
    Backed by the U.S. government
    A guaranteed return on investment