ACCA Financial Management (F9) Certification Practice Exam

How are Treasury Bills typically issued?

1. At face value with interest payments

2. At a discount from face value

3. With variable interest rates

4. For a maturity longer than two years

The correct answer is: At a discount from face value

Treasury Bills are short-term government securities that are issued at a discount to their face value. This means that investors purchase them for less than their nominal value, and when the bills reach maturity, the government pays the full face value. The difference between the purchase price and the face value represents the investor's interest or return. This method of issuing Treasury Bills at a discount aligns with their design as short-term investments, typically with maturities ranging from a few days to one year. The other options do not accurately describe the characteristics of Treasury Bills. For example, Treasury Bills do not pay interest in the form of periodic coupon payments; instead, they rely solely on the discount mechanism to provide returns. Additionally, they do not have variable interest rates or maturities longer than two years, as such features are typically associated with other types of debt instruments, like bonds or notes. The structure of Treasury Bills makes them appealing for investors seeking low-risk, short-term investment opportunities.