When Used in the Context of Investment Decision Making, the Term

question 12

Multiple Choice

When used in the context of investment decision making, the term liquidity refers to ________.

• A) the ease and speed with which an asset can be sold at any value possible
• B) the ease and speed with which an asset can be sold without having to discount the value
• C) an aspect of monetary policy
• D) the proportion of short-term to long-term investments held in an investor's portfolio

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Definitions:

Government Of Canada

The federal administration and institutions of Canada, responsible for national policy and governance.

Inflation Premium (IP)

The premium added to the real risk-free rate of interest to compensate for the expected loss of purchasing power. The inflation premium is the average rate of inflation expected over the life of the security.

Default Risk Premium (DRP)

The additional yield that investors demand to compensate for the risk of default by the issuer of a bond beyond the risk-free rate.

Liquidity Premium (LP)

Liquidity Premium refers to the extra return investors demand to compensate for investing in securities with low liquidity or those difficult to sell quickly at market value.