Assume that the yield curve shows the current one-year rate is 8%, one-year forward rate one year from now is 8.6%. An investor wants to invest for 2-years. He has two alternatives 1) buys a two-year bond; 2) buys a one-year bond, and when it matures in one year, he buys another one-year bond. The investor expects that one year later, the one-year rate will be 8.2%, which statement is correct?

A. The investor should make decision based on his own prediction regardless of the markets view. Because he expects that the interest rate will go up next year, he should choose alternative 2.

B. The investor should choose alternative 1. If the investor is correct, alternative 1 will yield higher return than alternative 2 in 2 years.

C. He should choose alternative 2 because according to the yield curve the one-year rate one year from now is expected to be higher.

D. The investor should choose alternative 2. If the investor is correct, alternative 2 will yield higher return than alternative 1 in 2 years.