2. Assume that the yield curve is initially flat at 6% per annum. In particular, the one-year and two-year spot rates are both 6% per annum. Now assume that an investor has just bought a one-year zero coupon bond. Immediately after buying the bond, the Reserve Bank of Australia announces that interest rates are expected to decrease by 1% in one years time. Assuming annual compounding and that the Pure Expectations Hypothesis holds, which statement below is incorrect?

Group of answer choices

Immediately after the announcement, the yield curve will become downward-sloping.

Suppose an investor has bought a one-year zero-coupon bond just before the announcement. After the announcement the investor sells that bond and then buys a 2-year bond and then sells that bond in one year's time. Then, the expected holding period yield is more than 6% pa.

Immediately after the announcement, (1+r1)*(1.05)=(1+r2)^2

Immediately before the announcement, (1+r1)*(1.06)=(1+r2)^2

If the investor, who has bought a one-year zero-coupon bond just before the announcement holds that bond to maturity, the holding period yield is less than 6% pa.