You are considering an investment in 30-year bonds issued by acorporation. The bonds have no special covenants. The Wall StreetJournal reports that 1-year T-bills are currently earning 3.80percent. Your broker has determined the following information abouteconomic activity and the corporation bonds: Real interest rate =2.65% Default risk premium = 2.05% Liquidity risk premium = .85%Maturity risk premium = 1.80% What is the inflation premium? Whatis the fair interest rate on the corporation’s 30-year bonds?
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