The more illiquid an investment is

Question

Quizplus · Accepted Answer

The lower liquidity of an investment means it is more difficult to sell quickly without incurring significant losses. Therefore, investors would demand a lower price for a less liquid investment, all else equal. The lower liquidity of an investment means that it is harder to sell, which makes it less desirable to potential buyers. As a result, the price of the investment should be lower compared to a more liquid investment, all else equal. However, the expected rate of return may not necessarily be lower solely due to the level of liquidity. Therefore, option A and B are incorrect.

The More Illiquid an Investment Is