The __________ is the extra return required to induce lenders to lend long term rather than short term.
A)risk premium
B)liquidity premium
C)credit risk
D)liquidity risk

Question

Quizplus · Accepted Answer

The liquidity premium is the extra return that lenders demand to lend long term rather than short term. This is because long-term loans are inherently more risky due to the uncertainty of future interest rates and events that could impact the borrower's ability to repay the loan. Short-term loans, on the other hand, are considered less risky because the lender can get their money back relatively quickly if needed. The liquidity premium compensates lenders for this additional risk of long-term loans.

The __________ Is the Extra Return Required to Induce Lenders