Assume that the current spot rate between US Dollar and Japanese Yen is Yen 100/USD and that the expected exchange rate after one year is Yen 115/USD. Also, assume that the inflation rate in Japan is 4 times the inflation rate in the United States.

1. What is the inflation rate in the United States and Japan respectively, if the relative purchasing power parity holds true? *

a. 7.62%; 30.48%

b. 5.26%; 21.05%

c. 4.16%; 16.66%

d. 6.66%; 26.64%

e. None of the above