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Because of an economic recession, the coming year's expected inflation rate is 5 percent. However,...

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Because of an economic recession, the coming year's expected inflation rate is 5 percent. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 5 percent. Assume that the real risk-free rate is 1.6% for all maturities and that the expectations theory fully explains the yield curve. If 5 -year Treasury bonds yield 0.8 percentage points more than 1 -year Treasury bonds, what inflation rate is expected after Year 1 ? a. 5.80 percent b. 6.60 percent c. 15.00 percent d. 6.00 percent e. None of the above

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