Which of the following statements about Pure Expectation Theory are correct?

(1) Bonds of different maturities are perfect substitutes.

(2) Interest rate of a long-term bond equals to the average of short-term rates expected to occur over the life of the long-term bond.

(3) When short rates are expected to rise in future, average of future short rates is above todays short rate. Therefore, yield curve is upward slopping.

a.

(1) and (2) only

b.

(1) and (3) only

c.

(1), (2) and (3)

d.

(2) and (3) only