CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

The liquidity preference theory asserts that some premiums are needed to compensate investors for added ______ they face when lending long term.

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.
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