Question
16. A 5-year treasury bond has a 5.5% yield. A 10-year treasury bond yields 6.6%, and a 10-year corporate bond yields 8.9%. The market expects
16. A 5-year treasury bond has a 5.5% yield. A 10-year treasury bond yields 6.6%, and a 10-year corporate bond yields 8.9%. The market expects that inflation will average 2.0% over the next 10 years (IP 10=2%) 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. a five-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 five-year corporate bond? round your answer to one decimal place.
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