Suppose the annual yield on a two-year Treasury bond is 3.2 percent, the yield on a one-year bond is 2.4 percent, the real risk-free rate of interest or r* is 2 percent, and the maturity risk premium is zero (0).

a. Using the expectation theory, forecast the interest rate on a one-year bond during the second year.

b. What is the expected inflation rate in Year 1?

c. What is the expected inflation rate in Year 2?