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.