Can someone explain how the answer was found in detail, the answer given here is correct.

Default Risk Premium

A Treasury bond maturing in 5 years has a yield of 4 percent. A 5-year corporate bond has a yield of 7 percent. Consider that the liquidity premium on the corporate bond is 0.5 percent. If this is so, what is the default risk on the corporate bond?

Answer: Yield from treasury bills and inflation Premium: The risk-free rate is calculated by subtracting the current inflation rate from the yield of the treasury bond matching your investment duration.