Question: Currently, the term structure is as follows: One-year bonds yield 1 1.00%, two-year bonds yield 12.00% three-year bonds and greater maturity bonds a yield 13

Currently, the term structure is as follows: One-year bonds yield 1

Currently, the term structure is as follows: One-year bonds yield 1 1.00%, two-year bonds yield 12.00% three-year bonds and greater maturity bonds a yield 13 %. You are choosing between one two and three-year maturity bonds all paying annual coupons of 12.00% once a year. You strongly believe that at year-end the yield curve will be flat at 13.00%. 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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