The real risk-free rate of interest is 1 percent. Inflation is expected to be 3 percent this

coming year, jump to 5 percent next year, and increase to 6 percent the year after (Year 3).

According to the expectations theory, what should be the interest rate on 1-year, risk-free

securities today?

Group of answer choices

3.50%

4.50%

5.50%

5.00%

4.00%