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What is the fair interest rate on the corporation

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Reference no: EM132973039

Determinants of Interest Rate for Individual Securities

Real interest rate = 2.80%

Default risk premium = 2.35%

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

Liquidity risk premium = 1.00%

Maturity risk premium = 2.10%

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

Reference no: EM132973039

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