3. Assume that the real risk-free rate of return, r*, is 2 percent, and it will remain at that level far into the future. Also assume that the maturity risk premiums on Treasury bonds increase from zero for bonds that mature in one year or less to a maximum of 1.5 percent, and MRP increases by 0.1 percent for each year to maturity that is greater than one year that is, MRP equal to 0.1 percent for a two-year bond, 0.2 percent for a three-year bond, and so forth. The expected inflation rates are listed in the table below. Interest Average Expected Inflation Rate on Bonds Year MRP 1 2 Inflation Rate 4.0% 3.5% 3.0% 2.5% 3 4 5 2.0% a) What is the average expected inflation rate for a one-, two-, three-, four-, and five-year bond? Calculate and show your answer in the table above. b) What should be the MRP for a one-, two-, three-, four-, and five-year bond? Calculate and show your answer in the table above