The average investor must weigh the benefits of liquidity against
A)the high taxes generally levied on liquid assets.
B)the lower returns on liquid assets.
C)the high transactions costs involved in disposing of liquid assets.
D)the greater variability in the nominal returns on liquid assets.

Question

Quizplus · Accepted Answer

The sentence preceding the question mentions that "investors must weigh the benefits of liquidity," implying that liquidity is beneficial. Therefore, options A and C (high taxes and transaction costs) are likely disadvantages, and option D (greater variability in nominal returns) does not necessarily imply a disadvantage for the average investor. This leaves option B, which suggests that the returns on liquid assets may be lower than those on non-liquid assets. As such, the average investor must weigh the benefits of liquidity against potentially lower returns.

The Average Investor Must Weigh the Benefits of Liquidity Against