A 5 year Treasury bonds has a 5.3% yield. A 10 year Treasury bonds yields 6.4% and a 10-year corporate bond yields 8.4%. The market expects that inflation will average 2.5% over the next 10 years (IP10 = 2.5%). Assume that is no maturity risk premium, and that the annual real risk-free Premium and LP are zero for treasury securities. (DRP =LP =0) A 5-year corporate bond has the same default risk premium and LP as the 10-year corporate bond described above. What is the yield on this 5-year corporate bond?
