Question

You are considering an investment in 30-year bonds issued by Moore Corporation The bonds have no special covenants. The Wall Street ournal reports that one-year T-bills are currently earning 3.55 percent Your broker has determined the following information about economic activity and Moore Corporation bonds 50 Real interest rate 275 percent Default risk premium-1.05 percent Liquidity risk premium 0.50 percent Maturity risk premium 185 percent What is the inflation premium?

Answer 1

0.80%

Step-by-step explanation:

Calculation for the inflation premium

Using this formula

Expected Inflation premium = i - Real interest rate

Let plug in the formula

Expected Inflation premium = 3.55% - 2.75 %

Expected Inflation premium= 0.80%

Therefore the inflation premium is 0.80%