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

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, the yield curve will become downward-sloping.

Immediately after the announcement, (1+r1)*(1.05)=(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.