Problem 5-15

The interest rate outlook for Montrose Inc., a large, financially sound company, is reflected in the following information.

The pure rate of interest is 4.1%.

Inflation is expected to increase in the future from its current low level of 2%. Predicted annual inflation rates are shown in the table.

Year	Inflation Rate
1	2%
2	3
3	4
4	5
5-20	6

The default risk premium will be 0.2% for one-year debt, but will increase by 0.1% for each additional year of term to a maximum of 1.1%.

The liquidity premium is zero for one- and two-year debt, 0.5% for three-, four-, and five-year terms, and 1% for longer issues.

The maturity risk premium is zero for a one-year term and increases by 0.2% for each additional year of term to a maximum of 2%.

Use the interest rate model to estimate market rates on the firm's debt securities of the following terms: 1 to 5 years, 10 years, and 20 years. Round your answers to one decimal place.

Term	k
1	%_
2	%_
3	%_
4	%_
5	%_
10	%_
20	%_