1. Interest rates on 4-year Treasury securities are currently 6.3%, while 6-year Treasury securities yield 7.75%.

If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places.

2. A 5-year Treasury bond has a 4.45% yield. A 10-year Treasury bond yields 6.3%, and a 10-year corporate bond yields 8.55%. The market expects that inflation will average 3.45% over the next 10 years (IP₁₀ = 3.45%). 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 two decimal places.