You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special
Question:
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants.
The Wall Street Journal reports that 1-year T-bills are currently earning 3.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: (LG 2-6)
Real risk-free rate
=
2.25%
Default risk premium
=
1.15%
Liquidity risk premium = 0.50%
Maturity risk premium
=
1.75%
a. What is the inflation premium?
b. What is the fair interest rate on Moore Corporation 30-year bonds?
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Related Book For 
ISE Financial Markets And Institutions
ISBN: 9781265561437
8th International Edition
Authors: Anthony Saunders, Marcia Cornett, Otgo Erhemjamts
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