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Determinants of interest rate for individual securities

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

Real interest rate = 3.25%

Default risk premium = 3.25%

Liquidity risk premium = 1.45%

Maturity risk premium = 3.00%

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

Reference no: EM132507607

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