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 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.75% 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?
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 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.75% 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?
Chapter13: Long-term Liabilities
Section: Chapter Questions
Problem 3EB: Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual...
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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 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:
Real risk-free rate = 0.75%
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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