Determinants of Interest Rate for Individual Securities 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 3.60 percent. Your broker has determined the following information about economic activity and the corporation's bonds: Real interest rate = 2.80% Default risk premium = 2.35% Liquidity risk premium = 1.00% Maturity risk premium = 2.10% What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

Determinants of Interest Rate for Individual Securities 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 3.60 percent. Your broker has determined the following information about economic activity and the corporation's bonds: Real interest rate = 2.80% Default risk premium = 2.35% Liquidity risk premium = 1.00% Maturity risk premium = 2.10% What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 9P: Bond Valuation and Interest Rate Risk The Garraty Company has two bond issues outstanding. Both...

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