Question: A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 6.2%, and a 10 -year corporate bond yields 8.0%. The market expects

$A 5-year Treasury bond has a 3.7\% yield. A 10-year Treasury$

A 5-year Treasury bond has a 3.7\% yield. A 10-year Treasury bond yields 6.2%, and a 10 -year corporate bond yields 8.0%. The market expects that inflation will average 2.9% over the next 10 years ( IP10=2.9% ). 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 ane decimal place. %

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