Suppose that, at t=0

• the yield to maturity of 1 year risk-free zero coupon bonds is 1%
• the yield to maturity of 2 year risk-free zero coupon bonds is 2%

Then according to the expectations hypothesis:

Select one:

a. The yield curve is upward slopping and the expected yield to maturity of 1 year zero coupon bond, at t=1, is 3%

b. The yield curve is upward slopping and the expected yield to maturity of 1 year zero coupon bond, at t=1, is 0.5%

c. The yield curve is downward slopping and the expected yield to maturity of 1 year zero coupon bond, at t=1, is 0.5%

d. The yield curve is downward slopping and the expected yield to maturity of 1 year zero coupon bond, at t=1, is 3%