Suppose the yield on a 10-year T-bond is currently 5.05% and that on a 10-year T

Question

Suppose the yield on a 10-year T-bond is currently 5.05% and that on a 10-year Treasury Inflation Protected Security (TIPS) is 2.15%. Suppose further that the MRP on a 10-year T-bond is 0.90%, that no MRP is required on a TIPS, and that no liquidity premium is required on any Tbond. Given this information, what is the expected rate of inflation over the next 10 years? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

The answer is avaialble on google but could you show how to solve it? Thanks

Explanation / Answer

10-year T-bond yield                                                              5.05%

10-year TIPS yield = r*                                                           2.15%

MRP, 10-year T-bond only                                                    0.90%

Expected inflation = rT10

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