FINANCE
6-10: Inflation: Due to a recession, expected inflation this year is only 3%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3%. Assume that the expectation theory holds and the real risk-free rate (r*) is 2%. If the yield on the 3 year Treasury bonds equals the 1- year yield plus 2%, what inflation rate is expected after Year 1?
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