The real risk-free rate of interest is 3 percent. Inflation is expected to be 4 percent this coming year, jump to 5 percent next year, and increase to 6 percent the year after (Year 3). According to the expectations theory, what should be the interest rate on 3-year, risk-free securities today?
a. 18 %
b. 12 %
c. 6 %
d. 8 %
e. 10 %