A 5-year Treasury bond has a 5% yield. A 10-year Treasury bond has a 6% yield. The market expects that inflation will average 2.5% over the next 10 years. Assume that there is no maturity risk premium (MRP = 0), and that the annual real risk-free rate of interest, r*, will remain constant over the next 10 years. What does the market expect that inflation will average over the next five years?

• A. 1.0 percent
• B. 2.0 percent
• C. 2.5 percent
• D. 1.5 percent
• E. 3.5 percent