Find inflation rate is expected after one year

Reference no: EM13721417

Please calculate the right answer of the given Problem

Problem- Due to recession, expected inflation this year is only 2.5%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.5%. Assume that expectations theory holds and the real risk-free rate is r* = 2.25%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 2.25%.

Part 1- what inflation rate is expected after Year 1?

I want assist to find inflation rate is expected after one Year.

Reference no: EM13721417

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