Interest rate and Liquidity Premium with problematic investment
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gardiner526
Apprentice
Joined: 15 Jun 2009
Posts: 4
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 Posted: 09/03/11 - 08:28 Post subject: |
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| Hi. Are there any investors here who have got some personal experience with Liquidity Premiums and problematic investments? I have such a case at hand and I am considering taking it on. I am not sure if it is more risky, but the interest rate is very favourable, for some reason. If you have anything to say on such a situation then I would be very happy. |
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ripley
Apprentice
Joined: 13 Nov 2007
Posts: 2
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| Posted: 09/18/11 - 05:29 Post subject: |
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| Assets that are tricky to trade and convert into cash, that is assets with a low liquidity, usually come with a higher yield to maturity, because this is demanded from investors - without such a "compensation", I believe that nobody would be willing to make an investment into such securities. However, I am not sure how that affects interest rates. |
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stephine
Apprentice
Joined: 08 Oct 2006
Posts: 6
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| Posted: 10/03/11 - 02:30 Post subject: |
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| The Liquidity Premium refers to the extra money you will get, because of the problems with liquidity. It is an extra incentive from the issuer to entice you to accept the investment. While the undesirable part of the investments do not cease to exists because of a Liquidity Premium, it does make it a bit easier to cope! |
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