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The _____ premium is that portion of the bond yield that represents compensation for potential difficulties...

The _____ premium is that portion of the bond yield that represents compensation for potential difficulties that might be encountered should the bond holder wish to sell the bond prior to maturity.

Default risk

Taxability

Inflation

Liquidity
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Answer #1
Investors demand a premium If a bond cannot be easily sold prior to maturity. In other words, if the bond cannot be easily converted into cash, the
bondholders will demand a liquidity premium on the yield of the bond.
Liquidity Premium.
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