Question: A 5 - year Treasury bond has a 3 . 0 5 % yield. A 1 0 - year Treasury bond yields 6 . 1

A 5-year Treasury bond has a 3.05% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 9%. The market expects that inflation will average 3.3% over the next 10 years (IP10=3.3%). Assume that there is no maturity risk premium (MRP =0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP =0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described.
What is the yield on this 5-year corporate bond? Round your answer to two decimal places.

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