About economic activity and the corporation bonds

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Reference no: EM132055029

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 3.80 percent. Your broker has determined the following information about economic activity and the corporation bonds:

Real interest rate = 3.15%

Default risk premium = 3.05%

Liquidity risk premium = 1.35%

Maturity risk premium = 2.80%

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

A) .65% and 11.00%, respectively

B) .65% and 2.20%, respectively

C) .65% and 10.35%, respectively

D) 3.80% and 14.15%, respectively

Reference no: EM132055029

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