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 $1\mathrm{.}30$ percent. Your broker has determined the following information about

economic activity and Moore Corporation bonds:

Real risk$-$free rate $=0\mathrm{.}70\%$

Default risk premium $=1\mathrm{.}20\%$

Liquidity risk premium $=0\mathrm{.}60\%$

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

a$.$ What is the inflation premium? $($Round your answer to $2$ decimal places.$)$

Expected IP

b$.$ What is the fair interest rate on Moore Corporation $30-$year bonds? $($Round your answer to $2$ decimal places.$)$

Fair interest rate