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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 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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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92052988

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