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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 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? (Omit the "%" sign in your response.)

b. What is the fair interest rate on Moore Corporation 30-year bonds? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

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Business Economics, Economics

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