Liquidity is
A)The ability of an asset to be converted to cash.
B)Low for cash.
C)Not important for bondholders.
D)The opportunity cost of purchasing a bond.

Question

Quizplus · Accepted Answer

Liquidity refers to the ease and speed at which an asset can be converted into cash without any significant loss of value. Therefore, option A is the correct choice as it correctly defines liquidity as the ability of an asset to be converted to cash. Option B is incorrect, as cash is the most liquid asset and can be easily converted into other assets. Option C is also incorrect because the liquidity of a bond is crucial for bondholders, as they may need to sell the bonds before their maturity date. Option D is incorrect as it confuses liquidity with the opportunity cost of buying a bond, which is the return that could have been earned by investing in other assets with similar risk.

Liquidity Is