Question 3 -Inflation and Interest Rate [6 points]: Suppose that inflation currently is about 2 percent. Last year, the Fed took action to maintain inflation at this level. Now, the economy is starting to grow too quickly, and reports indicate that inflation is expected to increase during the next five years. Assume that the rate of inflation expected for the next year (Year 1) is 2 percent; the following year (Year 2) it is expected to be 3 percent; three years from now (Year 3) it is expected to be 5 percent; and every year thereafter, it is expected to settle at 4 percent (Year 4 to Year 5). a) What was the average expected inflation rate over the next five years (Year 1 through Year 5)? b) What average nominal interest rate would be expected on five-year Treasury securities, given that the real risk-free rate of return is 2 percent