The real risk-free rate of interest is 4 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 2-year, risk-free securities today? Group of answer choices 8.00% 8.50% 7.50% 6.50% 7.00%

The real risk-free rate of interest is 4 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 2 -year, risk-free securities today? \begin{tabular}{l} \hline .00% \\ \hline 8.50% \\ \hline 7.50% \\ \hline 6.50% \\ 7.00% \end{tabular}