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Currently, the term structure is as follows: One-year bonds yield 11.00%, two-year bonds yield 12.00%, three-year bonds and greater maturity bonds all yield 13.00%. 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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Financial Management, Finance

Category:- Financial Management
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