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 1.65 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:
Real risk-free rate = 0.65% Default risk premium = 1.55% Liquidity risk premium = 1.00% Maturity risk premium = 2.15%
a.What is the inflation premium?
b.What is the fair interest rate on Moore Corporation 30-year bonds?