All other things constant, securities that are extremely liquid:[Fill in the blank]

Question

BlackTom AI · Accepted Answer

Liquidity means an asset can be converted to cash quickly with little price concession. When all other characteristics (credit quality, maturity, coupon, etc.) are held constant, greater liquidity reduces the asset’s liquidity risk and the cost of trading, so the total risk faced by the investor is lower.

Step-by-step reasoning:
1. Relevant concepts: liquidity (marketability), liquidity risk (price impact and bid–ask spread), and the liquidity premium (compensation investors require for holding less liquid assets). “All other things constant” (ceteris paribus) means we compare securities that are identical except for liquidity.
2. Compare two otherwise identical securities: the extremely liquid one can be sold quickly without large price concessions, so it exposes the holder to less liquidity-driven uncertainty and lower transaction costs. That directly reduces one component of total risk.
3. Because liquidity reduces an investor’s risk exposure, the more liquid security is less risky (holding other factors equal). There are no numerical calculations here—this is a conceptual comparison.
4. Why c is correct: it states that extremely liquid securities have lower risk than less liquid securities, which follows from the reduction in liquidity risk and price volatility under ceteris paribus conditions.

Why the other options are incorrect:
- a (earn higher rates of return): incorrect. Less liquid securities typically offer higher expected returns (a liquidity premium) to compensate investors for the extra liquidity risk. More liquid securities usually have lower returns, not higher.
- b (have a longer maturity): incorrect. Liquidity is not systematically tied to maturity; very liquid instruments can be short-term (e.g., T-bills) or long-term, so maturity is independent.
- d and e combine incorrect statements above, so they are also wrong.

Conclusion: therefore the correct choice is c. This matches the provided answer.

All other things constant, securities that are extremely liquid:[Fill in the blank]单项选择题

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