Question: A 5 -year Treasury bond has a 5.4% yield. A 10 -year Treasury bond yields 6.9%, and a 10 -year corporate bond yields 9.2%. The

A 5 -year Treasury bond has a 5.4% yield. A 10 -year Treasury bond yields 6.9%, and a 10 -year corporate bond yields 9.2%. The market expects that inflation will average 2.5% over the next 10 years (IP 10= 2.5%). 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.) A5-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 one decimal place. %

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