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All marketable debt securities are held at cost on a company's balance sheet as a current asset, until a gain or loss is realized upon the sale of the debt instrument. Marketable debt securities are held as short-term investments and are expected to be sold within one year. If a debt security is expected to be held for longer than one year, it should be classified as a long-term investment on the company's balance sheet.
According to the liquidity preference theory, interest rates on short-term securities are lower because investors are sacrificing less liquidity than they do by investing in medium-term or long-term securities.!--break--Investors demand progressively higher premiums on medium-term and long-term securities as opposed to short-term securities.