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You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 0.40 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:
Real risk-free rate
= 0.33%
Default risk premium
= 1.55%
Liquidity risk premium
= 0.90%
Maturity risk premium
= 1.05%
a. What is the inflation premium?
b. What is the fair interest rate on Moore Corporation 30-year bonds?
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