Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. determinants of interest rate for individual secur

Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds issued...

80.2K

Verified Solution

Question

Finance

Determinants of Interest Rate for Individual Securities You areconsidering an investment in 30-year bonds issued by a corporation.The bonds have no special covenants. The Wall Street Journalreports that 1-year T-bills are currently earning 3.60 percent.Your broker has determined the following information about economicactivity and the corporation bonds:

Real interest rate = 3.05%
Default risk premium = 2.85%
Liquidity risk premium = 1.25%
Maturity risk premium = 2.60%

What is the inflation premium? What is the fair interest rate onthe corporation's 30-year bonds?

Answer & Explanation Solved by verified expert
3.5 Ratings (572 Votes)
SEE THE    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Determinants of Interest Rate for Individual Securities You areconsidering an investment in 30-year bonds issued by a corporation.The bonds have no special covenants. The Wall Street Journalreports that 1-year T-bills are currently earning 3.60 percent.Your broker has determined the following information about economicactivity and the corporation bonds:Real interest rate = 3.05%Default risk premium = 2.85%Liquidity risk premium = 1.25%Maturity risk premium = 2.60%What is the inflation premium? What is the fair interest rate onthe corporation's 30-year bonds?

Other questions asked by students

Q

1. Calculate the current price of a $1,000 par value bond that has a coupon rate...

Finance
Q

A rock sample is placed in a strength-testing machine at atmospheric pressure and is compressed axially...

Physics
Q

A B C D Wing would be an example of primary succession The regrowth of...

Biology
Q

Media that allows you to tell different bacteria apart from each other color/appearance in the...

Biology
Q

1 R 20 7 J sin S cos S tan S find sin R cos...

Geometry
Q

begar elevatio closed on BM1231 elevation 418 60 The Plus and minus sights were kept...

Basic Math
Q

What is the factored form of m - 6m + 8?(m-4)(m - 2)(m-4)(m + 4)(m-4)(m...

Basic Math
Q

Which graph represents the function f x 2 3 A B 0 2 0 3...

Algebra
Q

Jason is one of 100 shareholders in Jace Corporation. The remaining 99 shareholders are unrelated...

Accounting
Q

Company purchases a machine at the beginning of the you a cost of $30,000. The...

Accounting
Q

Scenario 9: A health economist has undertaken the one-way deterministic sensitivity analysis of a new...

Accounting
Q

Covid-19 has created a volatile operating environment for all companies and one major concern is...

Accounting