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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
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 1.95 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: |
Real risk-free rate = 0.90% |
Default risk premium = 1.85% |
Liquidity risk premium = 1.05% |
Maturity risk premium = 2.45% |
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 | % |
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