10. Inflation

Due to a recession expected inflation this year is only 3.25%. However, the inflation rate in year 2 and thereafter is expected to be constant at some level above 3.25%. Assume that expectations theory holds and the real risk-free (r) is 2.5% If the yield on 3 year Treasury bonds equal the 1- year yield plus 1.5% what inflation rate is expected after year 1?