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 1.35 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.65% Default risk premium = 1.25% Liquidity risk premium = 0.70% Maturity risk premium = 1.85%
a. What is the inflation premium? (Round your answer to 2 decimal places.)
Expected IP = %
b. What is the fair interest rate on Moore Corporation 30-year bonds? (Round your answer to 2 decimal places.)
Fair interest rate = %