Liquidity: How it Affects Investments


There are several factors that influence what assets are the best to invest in. People often choose investments that give a high expected rate of return, while others choose ones for other reasons. Investors demand for various assets are based on three main characteristics. The first is the expected return the asset provides compared with the returns provided by other assets. The second characteristic is the risk associated with the asset's expected return. The third characteristic, which this paper discusses, is the liquidity of the asset. Liquidity is a unique characteristic that describes how easy and at what cost an asset is able to be sold. It is important when investing to understand that there is inherent risk with holding assets that are more liquid, but there are also potential greater rates of return with less liquid investments. This paper will analyze liquidity in relation to various types of investments on multiple......

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Title: Liquidity: How It Affects Investments
Approximate Word Count: 1265
Approximate Pages: 6 (250 words per double-spaced page)

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