Question
Determinants of Interest Rates for Individual Securities You are considering an invest- ment in 30-year bonds issued by Moore Corporation. The bonds have no special
Determinants of Interest Rates for Individual Securities You are considering an invest- ment in 30-year bonds issued by Moore Corporation. The bonds have no special cove- nants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.75% Default risk premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% a. What is the inflation premium? (LG6-4) b. What is the fair interest rate on Moore Corporation 30-year bonds? (LG6-4)
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