Answer: 
Work Shown:

This can be rewritten into 
Since the basis is from year 1 to year 2, calculate first for the difference of their percentages. That would be:
Difference = year 2 - year 1
Difference = 2.32% - 1.1% = 1.22%
We apply this same value of percentage increase from year 2 to year. Thus, the percentage for year 3 is:
% Year 3 = % Year 2 + percentage increase
% Year 3 = 2.32% + 1.22%
% Year 3 = 3.54%
Triangle D
Because the Pythagorean Theorem is only used with a RIGHT triangle
Could you maybe rotate the picture so we can see it better?