You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journalreports 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:
- Real interest rate = 2.75 percent
- Default risk premium = 1.05 percent
- Liquidity risk premium = 0.50 percent
- Maturity risk premium = 1.85 percent
What is the fair interest rate on Moore Corporation 30-year bonds?
a. 3.80 percent
b. 6.95 percent
c. 6.45 percent
d. 9.70 percent