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Due to a recession, expected infiation this year is only 2.25%. However, the infiation rate in Year 2 and thereafter is expected to be constant
Due to a recession, expected infiation this year is only 2.25\%. However, the infiation rate in Year 2 and thereafter is expected to be constant at some level above 2.25%. Assume that the expectations theory holds and the real risk-free rate ( r ) is 1.5%. If the yeld on 3 -year Treasury bonds equals the 1 -year yieid plus 2.0\%, what inflation rate is expected after Year 1 ? Round your answer to two decimal places
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