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You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The one-year T-bills are currently earning 3.25

You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The 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?

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

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