Answer Happy

Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 4.25% yield. A 10-year Treasury bond yields 6.5%, and a 10-year corporate bond yields 8.4%. The market expects that inflation will average 3.6% over the next 10 years (IP10 = 3.6%). 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. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet What is the yield on this 5-year corporate bond? Round your answer to two decimal places. %