Problem $6-2$ Determinants of Interest Rates for Individual Securities $($LG$6-6)$

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 $1\mathrm{.}90$ percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:

Real risk$-$free rate $=0\mathrm{.}85\%$

Default risk premium $=1\mathrm{.}80\%$

Liquidity risk premium $=1\mathrm{.}05\%$

Maturity risk premium $=2\mathrm{.}40\%$

a$.$ What is the inflation premium?

b$.$ What is the fair interest rate on Moore Corporation $30-$year bonds?

Note: Round your percentage answers to $2$ decimal places $($i$.$e$.,0\mathrm{.}1234$ should be entered as $12\mathrm{.}34).$

$\backslash$table$[[$Expected inflation premium,$\%$