a. What is the inflation premium? b. What is the fair interest rate on Moore Corporation 30-year bonds?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You are considering an investment in 20-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 0.50 percent. Your broker has determined the following information
about economic activity and Moore Corporation bonds
Real risk-free rate :
Default risk premium
Liquidity risk premium
Maturity risk premium
0.45%
1.05%
0.00%
0.75%
a. What is the inflation premium?
b. What is the fair interest rate on Moore Corporation 30-year bonds?
(For all requirements, round your answers to 2 decimal places. (e.g.. 32.16))
a Inflation premium
b. Fair interest rate
Transcribed Image Text:You are considering an investment in 20-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 0.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds Real risk-free rate : Default risk premium Liquidity risk premium Maturity risk premium 0.45% 1.05% 0.00% 0.75% a. What is the inflation premium? b. What is the fair interest rate on Moore Corporation 30-year bonds? (For all requirements, round your answers to 2 decimal places. (e.g.. 32.16)) a Inflation premium b. Fair interest rate
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