Financial Risk Manager Part 2
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Q-56. This data is displayed below as a scatterplot where the y-axis is the long-run average return of the asset class and the x-axis is an index of illiquidity. A higher index (ie, to the right) implies less liquidity. For example, the venture capital as an asset class is assigned to the least liquid (most illiquid) asset class but it also plots the highest long-run average return.
[Image blocked: Asset class returns versus illiquidity]
In regard to the illiquidity risk premium, which of the following statements is TRUE?
A
In general illiquid asset classes offer high risk-adjusted returns
B
These charts demonstrate that there do exist large illiquidity risk premiums ACROSS asset classes
C
There do exist large illiquidity risk premiums WITHIN many asset classes, but not ACROSS asset classes
D
Illiquid equities earn the same returns as liquid equities; and illiquid bonds earn the same returns as liquid bonds