Question

If interest rates move lower after a Treasury note is issued, a holder selling it into the secondary markets:

Select one:

a. receives a capital loss

b. receives a capital gain

c. Treasury note cannot be sold into the secondary markets

d. receives a higher yield owing to the time elapsed

e. receives the original price, as short-term markets are not so affected by interest rate movements.

Answer 1

The correct answer is option b. receives a capital gain.

If the interest rates decrease, the price of treasury notes increase

Option a is incorrect because the investor receives a capital gain, not loss

Option c is incorrect because Treasury notes can be sold into the secondary markets, but not bought on secondary markets

Option d is incorrect because the investor doesn't receive a higher yield owing to the time elapsed

Option e is incorrect because even the short-term markets are also affected by interest rate movements