Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds issued by a corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 3.70 percent. Your broker has determined the following information about economic activity and the corporation's bonds:

Real interest rate = 2.60% Default risk premium = 1.95% Liquidity risk premium = .80% Maturity risk premium = 1.70%

What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

• 3.70% and 10.75%, respectively

• 1.10% and 7.05%, respectively

• 1.10% and 8.15%, respectively

• 1.10% and 1.63%, respectively