Problem 6-2 Determinants of Interest Rates for Individual Securities (LG6-6)

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 1.40 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:

Real risk-free rate = 0.60%

Default risk premium = 1.30%

Liquidity risk premium = 0.80%

Maturity risk premium = 1.90%

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

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