Suppose that a small, rural city in the countryside of North Dakota plans to issue $150,000 worth of 10-year bonds.Which one of the following components of the bond's yield will be affected by the fact that no active secondary market is expected for these bonds?

Question

Quizplus · Accepted Answer

The liquidity premium is affected because the lack of an active secondary market makes it harder to sell the bonds, thus requiring a higher yield to compensate for this illiquidity.

Suppose That a Small, Rural City in the Countryside of North