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What is the liquidity premium?

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What is the liquidity premium?
in General Knowledge by ♦ Diamond (44,867 points) | 194 views

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The liquidity premium compensates investors for the risk of loss relative to an investment's fair value if the investment needs to be
converted to cash quickly. US T-bills, for example, do not bear a liquidity premium because large amounts can be bought and sold without affecting their market price.

Many bonds of small issuers, by contrast, trade infrequently after they are issued; the interest rate on such bonds includes a liquidity premium reflecting the relatively high costs (including the impact on price) of selling a position.
by ♦ Diamond (44,867 points)

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