Currently, you can exchange €100 for $125. The inflation rate in Europe is expected to be 2.5 percent. In one year, it is expected that €100 can be exchanged for $125.88. Assume relative purchasing power parity exists. What is the expected inflation rate in the U.S.?
a. 3.84 percent
b. 3.20 percent
c. 4.26 percent
d. 5.21 percent