So I read that to mean the 2nd row should be:
Knit 1, increase 1, Knit 1, increase 1, Purl 1
so at the end of the row, you'll have 5 stitches on your needle (just like you said).
Unless the beginning of the pattern has some kind of instruction that says "perform all increase by doing XXXXX" -- then you can do the increases however you like. I'm a fan of the "M1A" or "M1F" increase -- (Make 1 away or make 1 front). You can find videos of these increases here
The yarn-over increase is the easiest one to do, but it usually leaves a big hole in your work, so I'd avoid doing that. (You can see the YO increase at the bottom of Amy's increase page).