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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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### 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
<\$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