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You are considering an investment in 30-year bonds issued by Envision 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 Envision Corporation bonds:

Real interest rate is 2.20%

Default risk premium is 1.00%

Liquidity risk premium is 0.50%

Maturity risk premium is 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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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91671389

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