Answer (D) is correct . An asset is liquid if it can be converted to cash on short notice. Liquidity (marketability) risk is the risk that assets cannot be sold at a reasonable price on short notice. If an asset is not liquid, investors will require a higher return than for a liquid asset. The difference is the liquidity premium.
Answer (A) is incorrect because Default risk is the risk that a borrower will not pay the interest or principal on a loan.
Answer (B) is incorrect because Interest-rate risk is the risk to which investors are exposed because of changing interest rates.
Answer (C) is incorrect because Purchasing-power risk is the risk that inflation will reduce the purchasing power of a given sum of money.
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