Question: Currently, the term structure is as follows: One - year bonds yield 1 1 . 5 0 % , two - year zero - coupon

Currently, the term structure is as follows: One-year bonds yield 11.50%, two-year zero-coupon bonds yield 12.50%, three-year and longer maturity zero-coupon bonds all yield 13.50%. You are choosing between one, two, and three-year maturity bonds all paying annual coupons of 12.50%. You strongly believe that at year-end the yield curve will be flat at 13.50%.
Required:
Calculate the one year total rate of return for the three bonds.
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
Which bond you would buy?
multiple choice
One-year bond
Two-year bond
Three-year bond

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