Question: A 5-year Treasury bond has a 4.9% yield. A 10 -year Treasury bond yields 7.0%, and a 10 -year corporate bond yields 8.8%. The market

A 5-year Treasury bond has a 4.9% yield. A 10 -year

A 5-year Treasury bond has a 4.9% yield. A 10 -year Treasury bond yields 7.0%, and a 10 -year corporate bond yields 8.8%. The market expects that inflation will average 2.4% over the next 10 years (IP10=2.4%). 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 one decimal place. %

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