17. Problem 6.17 (Interest Rate Premiums) eBook A 5-year Treasury bond has a 4.5% yield....
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17. Problem 6.17 (Interest Rate Premiums) eBook A 5-year Treasury bond has a 4.5% yield. A 10-year Treasury bond yields 6.6%, and a 10-year corporate bond yields 9.4%. 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*, wi" 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
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