Final answer:
The concept being discussed is the relationship between a bond's marketability, trading frequency, and its interest rate.
Step-by-step explanation:
The concept being discussed is the relationship between a bond's marketability, trading frequency, and its interest rate. The less frequently a bond is traded, the higher the premium added to it, which increases the interest rate. This concept is based on the principle that the value of a bond is inversely related to the prevailing interest rates in the market.
When interest rates fall after a bond is issued, the bond becomes more valuable as the investors have locked in a higher interest rate. On the other hand, if interest rates rise after a bond is issued, the bond becomes less valuable as the investors are locked into a lower interest rate.
Thus, marketability and trading frequency of a bond play a crucial role in determining its interest rate