Currently, the term structure is as follows: 1 year zero-coupon bonds yield7%, 2 year zero-coupon bonds yield 8%; 3 year and longer maturity zero-coupon bonds all yield 9%. You are choosing between 1-, 2-, and 3-year maturity bonds all paying annual coupons of 8%.

a) What is the price of each bond stock today?

b) what will be the price of each bond in one year if the yield curve is flat at 9% at the time?

c) What will be the rate of return on each bond?