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

You are considering an investment in 30-year bonds issued by a corporation. The bonds have no special covenants. The Wall Street Journal reports that one-year T-bills are currently earning 3.50 percent. Your broker has determined the following information about economic activity and the corporation's bonds:
Real interest rate = 2.50 percent
Default risk premium = 1.75 percent
Liquidity risk premium = 0.70 percent
Maturity risk premium = 1.50 percent
What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

A) 1 percent and 1.49 percent, respectively
B) 1 percent and 6.45 percent, respectively
C) 1 percent and 7.45 percent, respectively
D) 3.50 percent and 9.95 percent, respectively