Question

Give an example of a liquid and an illiquid investment. Discuss why you consider each of...

Give an example of a liquid and an illiquid investment. Discuss why you consider each of them to be liquid or illiquid.

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Answer #1
Give an example of a liquid and an illiquid investment. Discuss why you consider each of them to be liquid or illiquid.
Liquidity is convertibility to cash at short notice.
A U.S. Treasury bond is an example of a liquid investment for the following reasons:
1. It is readily convertible to cash because there are sure to be buyers of the same , ie.marketability is good.
2. and because of the market,it is easier to convert into cash without much price difference.
3.the yield required by the investor is also low , as he is sure of the saleability
Non-exchange traded bonds or securities or buildings are examples of illiquid investments as
1. they take time to be converted to cash
2. and that too , may fetch very low prices
3. as it is difficult to find the next buyer, the current investor will require higher rates of return.
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