Question

The average rate of return on investments in large stocks has outpaced that on investments in Treasury bills by about 7% since 1926. Why, then, does anyone invest in Treasury bills?

Short answer

A person invests in treasury bills because they are low risk investments.

Step-by-step solution

Definition

Buying a stock represents a share of ownership in the company while investment in treasury bills represent making loan to government

Explanation

Buying a stock and sharing ownership may indeed bring lucrative returns on investment but it also brings in the risks on account of predictability and performance.

On the other hand, the treasury bills are low-risk investments. The difference between the rates of return is the price the investor pays for his investment's unpredictable performance value.