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Question 4: Below is a table of bond yields Bond Yield 10 Year Corporate Bond 10.5% 10 Year Treasury Bond 9.1% 5 Year Treasury Bond
Question 4: Below is a table of bond yields
| Bond | Yield |
| 10 Year Corporate Bond | 10.5% |
| 10 Year Treasury Bond | 9.1% |
| 5 Year Treasury Bond | 5.9% |
The market expects inflation to be 2% per year over the next 10 years. Assume that there is no maturity risk (MPR=0), the risk free rate will remain constant over the period, and a 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond. What is the yield on the 5 year corporate bond?
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