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% What is the inflation premium? What is the fair interest rate on Moore Corporation 30-year bonds?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
- 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%
- What is the inflation premium?
- What is the fair interest rate on Moore Corporation 30-year bonds?
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