About economic activity and corporation bonds

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Reference no: EM131875564

Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds issued by a corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 5.30 percent. Your broker has determined the following information about economic activity and the corporation bonds:

Real interest rate = 4.15%

Default risk premium = 2.55%

Liquidity risk premium = .40%

Maturity risk premium = 2.30%

What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

5.30% and 14.70%, respectively

1.15% and 2.11%, respectively

1.15% and 9.40%, respectively

1.15% and 10.55%, respectively

Reference no: EM131875564

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