Liquidity premium
Liquidity premium (also known by its acronym, LP) is a premium that is added to the real risk-free rate of interest, in addition to other premiums, if a security is not liquid. liquidity ratio A ratio that shows the relationship of a firm's cash and other current assets to its current liabilities.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Liquidity premium (LP). A liquidity premium is added to the real risk-free rate of interest, in addition to other premiums, if a security is not liquid. liquidity ratio A ratio that shows the relationship of a firm's cash and other current assets to its current liabilities.
According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),
- Liquidity premium (LP). A premium added to the equilibrium interest rate on a security if that security cannot be converted to cash on short notice and at close to its “fair market value.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
