Suppose 1-year T-bills currently yield 7.10% and the future inflation rate is expected to be constant at 2.70% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average.

a. 4.40%

b. 7.10%

c. 7.29%

d. 4.90%

e. 9.80%