The premium on a bond that compensates you for your potential inability to sell the bond in the future is the
A)liquidity premium.
B)default premium.
C)time premium.
D)risk premium.

Question

Quizplus · Accepted Answer

The premium that compensates an investor for their potential inability to sell a bond in the future is typically referred to as the liquidity premium. This premium is designed to account for the fact that certain bonds may be harder to sell on the secondary market, which could result in lower prices or longer holding periods. The default premium, on the other hand, is a premium paid to compensate for the risk of default by the borrower. The time premium reflects the extra cost of owning a bond for a longer time period, while the risk premium accounts for the additional risk associated with investing in a particular bond. The liquidity premium is the compensation investors receive for holding a bond that may be difficult to sell in the future due to its lack of liquidity. This compensation is typically reflected in the form of a higher yield or interest rate on the bond. The default premium is the compensation for the risk of default, the time premium is the compensation for the time value of money, and the risk premium is the compensation for the overall riskiness of the investment.

The Premium on a Bond That Compensates You for Your