An investor is considering the purchase of a bond. The investor is concerned that it may be difficult to sell the bond since the market in that bond is not active. The investor will demand a _______ premium.

Question

Quizplus · Accepted Answer

The investor's concern about difficulty in selling the bond due to lack of market activity pertains to liquidity risk. Therefore, the investor will demand a liquidity premium to compensate for this risk. The other options listed (interest rate risk, inflation, default, and sale) do not directly relate to the investor's concern about market liquidity.

An Investor Is Considering the Purchase of a Bond