The real risk-free rate is 2.05%. Inflation is expected to be 3.25% this year, 4.6% next year, and then 2.65% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Round your answer to two decimal places.

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Due to a recession, expected inflation this year is only 2.5%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.5%. Assume that expectations theory holds and the real risk-free rate is r* = 2.5%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 2.5%, what inflation rate is expected after Year 1? Round your answer to two decimal places.

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