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Is his interest rate example correct? > In 2020, the 10-year US treasury note yielded 0.5-0.7% per year. In 2023, it was between 4-5% – and 4%. These bonds pay
by samspenc 3y ago
Is his interest rate example correct?
> In 2020, the 10-year US treasury note yielded 0.5-0.7% per year. In 2023, it was between 4-5% – and 4%. These bonds pay interest every 6 months and return the principal amount invested in 10 years. Here’s how much money every $1,000 invested would yield:
And then he goes on to show that $1000 invested at a 4-5% interest rate would yield either $400 or $500 after 10 years.
But I thought that US treasuries, bonds and similar investments yield compound interest? Or was I mistaken all this time and it's been simple interest all along.
- p10_user 3y agoIt doesn't compound because you aren't repurchasing more treasuries with your interest.
- Kon-Peki 3y agoYou are right, but... You get a coupon payment every 6 months for 10 years and you have to do something with that money. It can have a compounding effect if you aren't just spending it on beer and Cheetos. So for most people, the interest does compound - just not directly.
- pram 3y agoSavings bonds and CDs compound. T-bills just pay the interest.