Final answer:
The market must anticipate the rate of inflation will be 4.50% in Year 5.
Step-by-step explanation:
To determine what the market must anticipate the rate of inflation will be in Year 5, we can use the maturity risk premium formula.
The maturity risk premium is given by MRPi = (0.15%)*(t-1), where t is the number of periods until maturity.
In this case, we have a 6-year Treasury security, so t = 6.
Plugging in the values, we get MRP6 = (0.15%)*(6-1) = 0.75%.
Now, we need to find the expected rate of inflation for Year 5.
Given that the expected rate of inflation for Year 6 is 4.50 percent, we can assume that the expected rate of inflation for Year 5 will be the same, i.e., 4.50 percent.