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 2.15 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:Real risk-free rate = 0.75%Default risk premium = 2.05%Liquidity risk premium = 1.40%Maturity risk premium = 2.65%  What is the inflation premium? (Round your answer to 2 decimal places.) Expected IP ______.__%   What is the fair interest rate on Moore Corporation's 30-year bonds? (Round your answer to 2 decimal places.) Fair Intrest Rate _______.__%

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 16P
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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 2.15 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:

Real risk-free rate = 0.75%
Default risk premium = 2.05%
Liquidity risk premium = 1.40%
Maturity risk premium = 2.65%
 

  • What is the inflation premium? (Round your answer to 2 decimal places.)

    • Expected IP ______.__%

 

  • What is the fair interest rate on Moore Corporation's 30-year bonds? (Round your answer to 2 decimal places.)
    • Fair Intrest Rate _______.__%
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