The liquidity premium
A)compensates savers for the illiquidity of an asset.
B)is announced quarterly for each asset by the Securities and Exchange Commission.
C)is published by private bond-rating agencies.
D)compensates savers for the lower yield they would otherwise receive on highly taxed assets.

Question

Quizplus · Accepted Answer

The liquidity premium is the additional return or compensation that savers require for investing in an illiquid asset, such as a long-term bond or a real estate property. This premium is necessary to compensate investors for the potential loss of opportunities to invest in more liquid assets, as well as the higher transaction costs associated with illiquid assets. The Securities and Exchange Commission, private bond-rating agencies, and taxation are not directly related to the liquidity premium.

The Liquidity Premium