A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.4%, and a 10-year corporate bond yields 9%. The market expects that inflation will average 3.75% over the next 10 years (IP₁₀ = 3.75%). 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.

B C 1 Interest rate premiums 4.80% 5-year Treasury yield (T5) 10-year Treasury yield (T10) 10-year Corporate yield (C10) 6.40% 9.00% 3.75% 0.00% 0.00% 0.00% Inflation Premium over 10 years (IP10) 7 Maturity Risk Premium (MRP) DRP Treasury 9 LP Treasury 10 DRPC + LPcs = DRP C10 + LPC10 11 12 Real risk-free rate, r* 8 Formulas #N/A Inflation premium over 5 years (IP) #N/A 14 15 16 DRP 10 + LP 10 #N/A 5-year Corporate yield (C5) #N/A