When comparing a highly liquid bond with a comparable but less liquid bond,the highly liquid bond is most apt to have:
A) a lower yield.
B) a shorter maturity.
C) a higher yield.
D) a longer maturity.

Question

Quizplus · Accepted Answer

A highly liquid bond is easier to sell, trade or convert to cash without significantly affecting its price. Therefore, investors are willing to pay a higher price for it, which results in a lower yield for the bond. In contrast, a less liquid bond may offer a higher yield to compensate investors for the added risk and difficulty in finding a buyer.

When Comparing a Highly Liquid Bond with a Comparable but Less