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What is the inflation premium

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Question - Determinants of Interest Rate for Individual Securities - You are considering an investment in 30-year bonds issued by Corporation A. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 2.50 percent. Your broker has determined the following information about economic activity and Corporation A bonds:

Real interest rate = 1.00%

Default risk premium = 1.25%

Liquidity risk premium = 0.75%

Maturity risk premium = 0.50%

Required -

A. What is the inflation premium?

B. What is the fair interest rate on Corporation A's 30-year bonds?

Reference no: EM133182372

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