Due to a recession, expected inflation this year is only 2.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.25%. Assume that the expectations theory holds and the real risk-free rate (r*) is 1.5%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 0.5%, what inflation rate is expected after Year 1? Round your answer to two decimal places.
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
Get Answers For Free
Most questions answered within 1 hours.