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 = 3.30\% Default risk premium = 3.35\% Liquidity risk premium = 1.50\% Maturity risk premium = 3.10\% 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 = 3.30\% Default risk premium = 3.35\% Liquidity risk premium = 1.50\% Maturity risk premium = 3.10\% What is the inflation premium? What is the fair interest rate on the corporation's 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
Section: Chapter Questions
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Transcribed Image Text: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 = 3.30\% Default risk premium = 3.35\% Liquidity risk premium
= 1.50\% Maturity risk premium = 3.10\% What is the inflation premium? What is the fair interest rate on the
corporation's 30-year bonds?
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