Question details

Currently, the term structure is as follows: One-year bonds yield
$ 12.00

Currently, the term structure is as follows: One-year bonds yield 11.75%, two-year bonds yield 12.75%, three-year bonds and greater maturity bonds all yield 13.75%. You are choosing between one-, two-, and three-year maturity bonds all paying annual coupons of 12.75%, once a year. You strongly believe that at year-end the yield curve will be flat at 13.75%.
a. 
Calculate the one year total rate of return for the three bonds. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
One Year Two Years Three Years
One year total rate of return % % % 
b. Which bond you would buy?
One-year bond
Two-year bond
Three-year bond

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