Treasury for a Relation

Mini Project 1

At a recent family outing, your favorite uncle pulled you aside for some financial advice. He had heard from your proud parents that you would soon graduate from BC with a major in Finance, and were even taking a Fixed Income class. He became excited about the opportunity to get some personal financial help and asked you to advise him on an investment concern.

Last week, a broker from Morgan Stanley Smith Barney offered to sell him some Treasury securities. The broker noted that $100,000 in certificates of deposit (CD’s) was coming due at the local bank, and that perhaps your uncle should own Treasury securities instead.

Your uncle has decided to purchase some Treasury securities, but is unsure if he should buy them from the broker or possible other sources. He has asked you to write him a brief white paper on how to purchase, hold, monitor and safeguard his treasury securities. He is likely to hold the securities for five years. He does not consider himself a financial expert and thus is looking for you to be as explicit as possible as to the alternatives he should consider and your recommendation as to a course of action. He also asks that you point out any important issues he would need to consider and any operational concerns or impediments he should understand.

He is not interested in your forecast of interest rates-that may come later. At this time, he has a financial plan in place and would just like to put some of his term to work in Treasury bills and the rest of his money in Treasury notes and bonds.

Overview

Treasury securities are a popular type of fixed income security issued by the U.S. government. As with all fixed income securities, the issuer must pay specified sums of money at specified future dates; by purchasing Treasury securities, one becomes entitled to interest and principal payments from the U.S. government. Treasury securities can be classified by the length of time the debt is outstanding, which is...