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

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

Explanation / Answer

a. What is the inflation premium

= T-bills rate-Real risk-free rate

=1.75%-0.90%

=0.85%

b. What is the fair interest rate on Moore Corporation 30-year bond

=0.90%+1.65%+0.85%+2.25%+0.85%

=6.50%

The above should be the answer..

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