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Find what is the inflation premium

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Reference no: EM132768556

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

Real interest rate = 2.95%

Default risk premium = 2.65%

Liquidity risk premium = 1.15%

Maturity risk premium = 2.40%

Problem 1: What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

Reference no: EM132768556

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