5a.A 5-year Treasury bond has a 3.65% yield. A 10-year Treasury bond yields 6.35%, and a 10-year corporate bond yields 8.5%. The market expects that inflation will average 3.15% over the next 10 years (IP₁₀ = 3.15%). 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.

5b.

An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8%. Bond C pays a 11.5% annual coupon, while Bond Z is a zero coupon bond. The data has been collected in the Microsoft Excel Online file below.perform the required analysis to answer the questions below.Assuming that the yield to maturity of each bond remains at 8% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Do not round intermediate calculations. Round your answers to the nearest cent.

4 3

2

1