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 1-year T-bills are currently earning 1.30 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate=0.70% ces Default risk premium = 1.20% Liquidity risk premium = 0.60% Maturity risk premium=1.80% a. What is the inflation premium? (Round your answer to 2 decimal places.) Expected IP b. What is the fair interest rate on Moore Corporation 30-year bonds? (Round your answer to 2 decimal places.) Fair interest rate
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 1-year T-bills are currently earning 1.30 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate=0.70% ces Default risk premium = 1.20% Liquidity risk premium = 0.60% Maturity risk premium=1.80% a. What is the inflation premium? (Round your answer to 2 decimal places.) Expected IP b. What is the fair interest rate on Moore Corporation 30-year bonds? (Round your answer to 2 decimal places.) Fair interest rate
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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Problem 6-2 Determinants of Interest Rates for Individual Securities (LG6-6)
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 1-year T-bills are currently earning 1.30 percent. Your broker has determined the following information about
economic activity and Moore Corporation bonds:
0
ences
Real risk-free rate= 0.70%
Default risk premium = 1.20%
Liquidity risk premium= 0.60%
Maturity risk premium = 1.80%
a. What is the inflation premium? (Round your answer to 2 decimal places.)
Expected IP
b. What is the fair interest rate on Moore Corporation 30-year bonds? (Round your answer to 2 decimal places.)
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