Assume that the expected rates of inflation over the next 5 years are 4 percent, 7 percent, 10 percent, 8 percent, and 6 percent, respectively. What is the average expected inflation rate over this 5-year period?

7%

Explanation:

The computation of the average expected inflation rate over this 5-year period is shown below:

= (First year inflation rate + second year inflation rate + third year inflation rate + fourth year inflation rate + five year inflation rate) : (Number of years)

= (4% + 7% + 10% + 8% + 6%) : (5 years)

= (35%) : (5 years)

= 7%