QUESTIONS 19 THROUGH 32 RELATE TO QUANTITATIVE METHODS

29.

The liquidity premium can be best described as compensation to investors for the:

A. risk of loss relative to an investment’s fair value if the investment needs to be converted to

cash quickly.

B. increased sensitivity of the market value of debt to a change in market interest rates as

maturity is extended.

C. possibility that the borrower will fail to make a promised payment at the contracted time and

in the contracted amount.