Suppose the rate of return on a 10-year T-bond is currently 8.00% and that on a 10-year Treasury Inflation Protected Security (TIP) is 3.50%. Suppose further that the maturity risk premium on a 10-year T-bond is 2.0%, that no maturity risk premium is required on TIPs, and that no liquidity premiums are required on any T-bonds. Given this data, what is the expected rate of inflation over the next 10 years? Select one:

a. 1.60%

b. 2.50%

c. 3.60%

d. 2.60%

e. 2.10%