Given the following data, find the expected rate of inflation during the next year:

• K = real risk-free rate = 3%
• The maturity risk premium on 10-year T-bonds = 2%
• The maturity risk premium is zero on 1-year bonds, and a linear relationship exists.
• Default risk premium on 10-year, A-rated bonds = 1.5%
• Liquidity premium = 0%
• Going interest rate on 1-year T-Bonds = 8.5%

Question options:

	3.5%
	4.5%
	5.5%
	6.5%
	7.%%