Government bonds do not pay very high interest rates. What advantages do they have for those who invest in them?

Responses

The value will vary with the dollar’s exchange rate.

It is beneficial to invest money at a low interest rate.

The money is guaranteed and will earn some interest.

Businesses get tax credits for purchasing government bonds.

1 answer

The most accurate response regarding the advantages of investing in government bonds is:

The money is guaranteed and will earn some interest.

Government bonds are typically considered safe investments because they are backed by the government. This means that investors can expect to get their principal back upon maturity, along with some interest (albeit usually relatively low). This safety and predictability make them an attractive option, especially for risk-averse investors.

The other options provided do not capture the primary advantages of government bonds accurately:

  • The value will vary with the dollar’s exchange rate. (This is more relevant to foreign currency bonds rather than government bonds in the investor's own currency)
  • It is beneficial to invest money at a low interest rate. (This statement is vague and does not highlight a specific advantage)
  • Businesses get tax credits for purchasing government bonds. (This is not generally true, as tax treatment can vary but tax credits for bond purchases are not a common benefit)