In your own words describe the term liquidity preference. Provide an example from your personal finances

Question

Question

Answer 1

Answer #1

Liquidity preference is the preference investors have for more liquid assets
like cash or short term bonds for example. When investors buy bonds with longer term
maturities they demand a premium on the yield of the bond, since they are sacrificing
liquidity.
The following is an example of investments made in treasury notes ( government securities)
A 3 year treasury note pays a 2% interest.
A 10 year treasury note pays a 4% interest.
A 30 year treasury note pays a 6% interest.

Answer 2

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