Suppose the Yield Curve Is Initially Horizontal and the Current

Multiple Choice

Suppose the yield curve is initially horizontal and the current one- year interest rate increases by 2% while the expected future one- year interest rate does not change. This event will tend to cause:

A) i2t to increase by 1%.
B) i2t to increase by less than 1%.
C) i2t to decrease by 2%.
D) i2t to increase by 2%.
E) i2t to decrease by 1%.