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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 1.70 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate =0.80% Default risk premium =1.60% Liquidity risk premium =0.90% Maturity risk premium =2.20% a. What is the inflation premium? b. What is the fair interest rate on Moore Corporation 30-year bonds? Note: Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34)
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