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 3.90 percent. Your broker has determined the following information about economic activity and the corporation bonds: Real interest rate = 3.45% Default risk premium = 3.65% Liquidity risk premium = 1.65% Maturity risk premium = 3.40% What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

.45% and 2.52%, respectively

.45% and 12.60%, respectively

.45% and 12.15%, respectively

3.90% and 16.05%, respectively