Question
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 on-year
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 on-year T-bills are currently earning 3.25 percent. Yours broker has determined the following information about economic activity and Moore Corporation Bonds: Real risk-free Rate = 2.25% Default risk premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75%
a. What is the inflation premium?
b. What is the fair interest rate on Moore Corporation 30-year bonds?
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Contemporary Financial Management
Authors: R. Charles Moyer, James R. McGuigan, William J. Kretlow
11th Edition
0324653506, 978-0324653502
