Final answer:
The liquidity premium is compensation to investors for the inability to sell an asset quickly.
Step-by-step explanation:
The liquidity premium can best be described as compensation to investors for the inability to sell an asset quickly. When an asset cannot be easily sold, it is considered illiquid. Investors who hold illiquid assets face the risk of not being able to convert them into cash when needed, leading to a higher risk compared to investing in liquid assets. Therefore, the liquidity premium serves as compensation for this risk.