The FED is concerned with interest rate levels and the possibility of inflation. 1 year spot rate is 0.10 and 2 year spot rate is 0.24.

1. Given this information, calculate the two annual forward rates.

2. Given the Spot rate and your two calculated forward rates, calculate the expected inflation premiums over the next three years. Assume the RR (real rate) = 2%.

3. Given your numbers, should the FED be concerned with inflation in the near term (first year), interim period (second year), or longer term (third year) period observed and calculated?