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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

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 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:Real risk-free rate = 0.75% *Please see that this is asking for real risk-free rate versus real interest rate* Please explain the difference.Default risk premium = 1.15%Liquidity risk premium = 0.50%Maturity risk premium = 1.75%a) what is the inflation premium? Please explain the calculation.b) what is the fair interest rate on Moore Corporation 30-year bonds?

 

May 15 2020 View more View Less

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