Suppose the real risk-free rate is 3.50% and the future rate of inflation is expected to be constant at 3.30%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.
a. 6.53%
b. 7.21%
c. 6.80%
d. 5.30%
e. 6.46%