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

Entrepreneurial Finance
6th Edition
ISBN:9781337635653
Author:Leach
Publisher:Leach
Chapter7: Types And Costs Of Financial Capital
Section: Chapter Questions
Problem 2EP
icon
Related questions
Question

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 one-year bonds are currently earning 1.25 percent. Your broker has determined the following information about economic activity and moore corporation bonds:

Real risk-free rate = 0.75%

Default risk premium = 1.15%

Liquidity risk premium = 0.50%

Maturity risk premium = 1.75%

a. what is the inflation premium?

b. what is the fair interest rate on Moore Corporation 30-year bonds?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps

Blurred answer
Knowledge Booster
Rate Of Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Entrepreneurial Finance
Entrepreneurial Finance
Finance
ISBN:
9781337635653
Author:
Leach
Publisher:
Cengage