You are considering an investment in 30-year bonds issued by Moore Corporation.

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 1-year T-bills are currently earning 1.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:

What is the fair interest rate on Moore Corporation 30-year bonds? (Round your answer to 2 decimal places.)

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 1.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:

Explanation / Answer

Real risk free interest rate 1.50% real interest rate 0.50% Default risk premium 1.40% Liquidity risk premium 1% Maturity risk premium 2% 1 Risk free rate = real rate+inflation rate Inflation rate = risk free rate - real rate 1.50%-0.5% Inflation premium or rate 1.00% 2 fair interest rate real rate + inflation premium+default risk premium+maturity risk premium+liquidity premium (0.5%+1%+1.4%+2%+1%) fair interest rate 5.90%

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.