Suppose the yield on a 10-year T-bond is currently 5.05% and that on a 10-year Treasury Inflation-Protected Security (TIPS) is 1.80%. Suppose further that the MRP on a 10-year T-bond is 0.90%, that no MRP is required on a TIPS, and that no liquidity premium is required on any T-bond. Given this information, what is the expected rate of inflation over the next 10 years? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

a. 4.15%

b. 2.35%

c. 3.25%

d. 2.31%

e. 1.80%