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 3.70 percent. Your broker has determined the following information about economic activity and the corporation bonds: Real interest rate = 3.35% Default risk premium = 3.45% Liquidity risk premium = 1.55% Maturity risk premium = 3.20% 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
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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 3.70 percent. Your broker has determined the following information about economic activity and the corporation bonds:

Real interest rate = 3.35%
Default risk premium = 3.45%
Liquidity risk premium = 1.55%
Maturity risk premium = 3.20%

What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

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