- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 26. The Term Structure and Interest Rate Dynamics
- Subject 4. Traditional Theories of the Term Structure of Interest Rates
CFA Practice Question
The liquidity preference theory asserts that some premiums are needed to compensate investors for added ______ they face when lending long term.
B. interest rate risk
C. credit risk
A. liquidity risk
B. interest rate risk
C. credit risk
Correct Answer: B
Yes it is the interest rate risk. The premium is not for the traditional "bond liquidity risk".
User Contributed Comments 2
| User | Comment |
|---|---|
| davidt87 | i mean the notes also say that the theory recognises the need to compensate for the fact that long-term bonds are less liquid |
| CFAJ | I love how they are already defensive in their explanation of the answer. |