(Answered) You are considering an investment in 30-year bonds issued

Engineering

You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journalreports that one-year T-bills are currently earning 3.55 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:

Real interest rate = 2.75 percent
Default risk premium = 1.05 percent
Liquidity risk premium = 0.50 percent
Maturity risk premium = 1.85 percent

What is the fair interest rate on Moore Corporation 30-year bonds?

a. 3.80 percent

b. 6.95 percent

c. 6.45 percent

d. 9.70 percent

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