Assume investors demand a real rate of return equal to 3 percent and that there is no maturity risk premium associated with Treasury securities. According to the Wall Street Journal, the average nominal yields on risk-free Treasury securities with different maturities are:

Type of security Yield

1-year 4.5%

2-year 4.6%

3-year 4.8%

4-year 5.0%

What is one-year nominal interest rate and inflation premium that is expected in Year 4?

A. 5%2%

B. 4.5%; 1.5%

C. 3%; 1.8%

D. 5.6%; 2.6%