Currently, the term structure is as follows: 1-year zero-coupon bonds yield 7%, 2-year bonds yield 8%, 3-year bonds and longer-maturity 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 total rate of return on each bond? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

	Total Rate of Return
1 Year	%
2 Years	%
3 Years	%

b.

Which bond should you buy if you strongly believe that at year-end the yield curve will be flat at 9%?

	1 Year
	2 Years
	3 Years