Discussion Post

Directions,
This order is a discussion post, therefore must include an initial response to the prompt, and two secondary responses. These secondary responses are students who have already replied to the initial post. These responses must be insightful and helpful to the student. The initial response MUST be completely answered. The order must adhere to APA format, include appropriate in-text citations, and it MUST include a reference page.
Example of in-text citation: (Last Name, Year of Publication, Paragraph Number/Page Number)

Initial Post,
Is it true that U.S. Treasury security is risk-free? Why is it that municipal bonds are not taxed at the federal level, but are taxable across state lines? Why is it that U.S. Treasury bonds are not taxable at the state level? (You may need to dust off the history books for this one.)

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Student Responses,
Haley
Is it true that a U.S. Treasury security is risk free? A U.S. Treasury security is not risk free, but it is considered very low risk. It is considered low risk because it does not have any default risk because the U.S Treasury should always have the money to make the payments. A U.S. Treasury security would be a great investment for someone who is wanting a low risk investment and is not expecting to make a large amount of money from it. Typically to get a large gain from an investment you would need to invest in something that is considered more high risk. Why is it that municipal bonds are not taxed at the federal level, but are taxable across state lines? Municipal bonds are used by states and local governments and they are considered tax exempt by the federal government. Municipal bonds are also exempt from state income taxes in certain states if the municipal bond was issued to an investor in the state in which they live in. The yield of municipal bonds is lower than taxable bonds. This is because interest rate on municipal bonds is lower than the interest rate on private bonds. Why is it that U.S. Treasury bonds are not taxable at the state level? U.S. Treasury bonds are fully taxable at the federal level since they are issued by the federal government. Since they are fully taxed at the federal level, they do not need to be taxed at the state level as well.

Alexus
The U.S. Treasury is responsible for currency. The treasury has a very important job. They keep our paper money and coin change updated and moving throughout the economy. The treasury is responsible for reprinting or disposing money as needed. Is it true that the U.S. Treasury is risk free? No, this question would be false. Risk free is very inaccurate when it comes to financial things. However, there is a very low risk rate. Fluctuation among interest rates causes the Treasury value to fluctuate.. Treasury security has a long term interest rate risk. U.S. Treasuries are considered one of our most secured pieces, but there is always some sort of risk.
Also a little fun fact about the weight of money, “to determine the weight of a million one-dollar bills. If someone were to have a bag full of ones equal to a million dollars, they wouldn’t be able to carry it by themselves. The bag would be huge and would weigh more than 2,000 pounds,” (Warren in Finance, 2019).
Municipal bonds can be issued by local and state governments so they are not taxable by the federal government. The bonds have a default risk. The coupons are taxable at the federal income tax level but exempt from state taxes. Constitutional principles inform us that the federal government is not permitted to tax the states without consent from the states because it interferes with state government. U.S. Treasury bonds cannot be taxed by state governments. States and the federal government do not tax each other’s securities.

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