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PROBLEMS (60 MARKS) (Show all the calculation steps) PROBLEM 1 You are considering an investment in 30 -year bonds issued by Moore Corporation. The bonds
PROBLEMS (60 MARKS) (Show all the calculation steps) PROBLEM 1 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 one-year T-bills are currently earning 3.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real interest rate 2.25% Default risk premium 1.15% Liquidity risk premium 0.50% Maturity risk premium 1.75% a. What is the inflation premium? (10 marks) b. What is the fair interest rate on Moore Corporation 30-year bonds? (10 Marks)
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