Assume Investors Demand a Real Rate of Return Equal to 3

Multiple Choice

Assume investors demand a real rate of return equal to 3 percent and that there is no maturity risk premium associated with Treasury securities.According to the Wall Street Journal,the average nominal yields on risk-free Treasury securities with different maturities are:
Type of security
Yield1-year
4) 5%2-year
4) 63-year
4) 84-year
5) 0What is the one-year nominal interest rate and the inflation premium that is expected in Year 4?

A) 5.0%;2.0%
B) 4.5%;1.5%
C) 3.0%;1.8%
D) 5.6%;2.6%
E) There is not enough information to answer this question.