Assume You Can Get 1

Assume you can get 1.13 Euros per U.S. dollar. The inflation rate in Europe is 2% while it is 6% in the U.S. Based on relative purchasing power parity, what will the exchange rate be in two years?

A) 1.04
B) 1.06
C) 1.12
D) 1.16
E) 1.22