Answer a.
Inflation premium = Return on 1-year T-bills - Real risk-free
rate
Inflation premium = 0.40% - 0.32%
Inflation premium = 0.08%
Answer b.
Fair interest rate = Inflation premium + Real risk-free rate +
Default risk premium + Liquidity risk premium + Maturity risk
premium
Fair interest rate = 0.08% + 0.32% + 1.05% + 0.70% + 0.65%
Fair interest rate = 2.80%
Problem 2-2 (LG 2-6) You are considering an investment in 30-year bonds issued by Moore Corporation....
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 1.30 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.70% Default risk premium = 1.20% Liquidity risk premium = 0.60% Maturity risk premium = 1.80% What is the inflation premium? (Round your answer to 2 decimal places.) What is the...
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 1.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.50% Default risk premium = 1.40% Liquidity risk premium = 1.00% Maturity risk premium = 2.00% a. What is the inflation premium? (Round your answer to 2 decimal places.)...
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 3.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 2.25 % Default risk premium = 1.15 % Liquidity risk premium = 0.50 % Maturity risk premium = 1.75 % a. What is the inflation premium? b. What is the fair...
You are considering an investment in 20-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 0.30 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.21% Default risk premium = 1.15% Liquidity risk premium = 0.80% Maturity risk premium = 0.75% a. What is the inflation premium? b. What is the fair interest rate on Moore...
3) You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants (no special provision premium). The 1-year T-bills are currently earning 3. 5%. You have the following information: Real risk-free rate = 1.25%, Default risk premium = 1.25%, Liquidity risk premium = 0.5%, Maturity risk premium = 1.75%. a) What is the inflation premium? b) What is the fair interest rate on Moore Corporation 30-year bonds?
3You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants (no special provision premium). The 1-year T-bills are currently earning 3. 5% You have the following information: Real risk-free rate 1.25 % , Default risk premium- 1.25% Liquidity risk premium - 0.5 % , Maturity risk premium 1.75 %. a) What is the inflation premium? b) What is the fair interest rate on Moore Corporation 30-year bonds?
Chapter 6 HW 30 points Saved Help Save & Exit Submit Check my work Problem 6-2 Determinants of Interest Rates for Individual Securities (LG6-6) points 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 2.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Skipped eBook Real risk-free rate = 0.85% Default risk premium...
Help ctmh oblems Help Save& Exit Subm Check my work 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 1.30 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate: 0.70% Liquidity risk premium a: O.60% Maturity risk premium-1.80% a. What is the inflation premium? (Round your answer to 2 decimal places.)...
1. A particular security's equilibrium rate of return is 8 percent.5. Tom and Sue's Flowers, Inc.'s 15-year bonds are currently yielding a return of 8.25 percent. The expected inflation pre- mium is 2.25 percent annually and the real risk-free rate is expected to be 3.50 percent annually over the next 15 years. The default risk premium on Tom and Sue's Flowers's bonds is 0.80 percent. The maturity risk premium is 0.75 percent on five-year securities and increases by 0.04 percent...
6. Moore Corporation has 6-year bonds. Inflation premium (IP) on a 6year bond is 1.00%. The real risk-free rate is r* = 2.80%, the default risk premium for Moore's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Moore's bonds is LP= 1.20%, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) x 0.1%, where t = number of years to maturity. What is the yield on...