1. A 5-year Treasury bond has a 4.6% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 8.9%. The market expects that inflation will average 2.0% over the next 10 years (IP₁₀ = 2.0%). 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.

2. The real risk-free rate, r*, is 1.7%. Inflation is expected to average 1.4% a year for the next 4 years, after which time inflation is expected to average 4.4% a year. Assume that there is no maturity risk premium. A 9-year corporate bond has a yield of 8.2%, which includes a liquidity premium of 0.5%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.