Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds...
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Determinants of Interest Rate for Individual Securities 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 5.10 percent. Your broker has determined the following information about economic activity and the corporation bonds: Real interest rate = 4.80% Default risk premium = 3.85% Liquidity risk premium = 1.05% Maturity risk premium = 3.60% What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds
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