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The real risk-free rate of interest is 3 percent. Inflation is expected to be 2 percent this coming year, jump to 3 percent next year,

image text in transcribed The real risk-free rate of interest is 3 percent. Inflation is expected to be 2 percent this coming year, jump to 3 percent next year, and increase to 4 percent the year after (Year 3 ). According to the expectations theory, what should be the interest rate on 1-year, risk-free securities today? 5.5% 6.5% 5.0% 7.0% 6.0%

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