You Are Considering an Investment in 30-Year Bonds Issued by Moore

question 38

Multiple Choice

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 3.55%. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real interest rate = 2.75%
Default risk premium = 1.05%
Liquidity risk premium = 0.50%
Maturity risk premium = 1.85%
What is the inflation premium?

• A) 0.80%
• B) 1.25%
• C) 6.25%
• D) 8.00%

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Definitions:

Trichiasis

An eye condition where eyelashes grow inward, touching the eyeball and potentially causing discomfort or damage.

Trich

Short for Trichomoniasis, a sexually transmitted infection caused by the parasite Trichomonas vaginalis.

Nyctalopia

A condition often referred to as night blindness, where individuals have difficulty seeing in low light or darkness.

Night Blindness

A condition that impairs the ability to see in low light or darkness.