Question: In a perfect world, there are only two interest rates: one-year maturity or two-year maturity. Both annual coupon rates are at 6% The yield curve

In a perfect world, there are only two interest rates: one-year maturity or two-year maturity. Both annual coupon rates are at 6% The yield curve is fiat at 6%. Investors expect a 120bp increase for the one-year interest rate at the end of one year. Assume all investors have a short-term (one-year) investment horizon. Question: Prove that investors' pure expectation can change the yield curve from fiat to upward sloping

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