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You are considering an investment in 30 year bonds issued by a corporation. The bonds have no special covenants. The Wall Street Journal reports that 1 year T-bills are currently earning 3.50 percent. Your broker has determined the following information about economic activity and the corporation bonds:

Real Interest Rate=2.50%

Default risk premium=1.75%

Liquidity risk premium=0.70%

Maturity risk premium= .50%

What is the inflation premium? What is the fair interest rate on the corporations 30 year bonds?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92852787

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