Currently, the term structure is as follows: One-year bonds yield 9.50%, two-year zero-coupon bonds yield 10.50%, three-year and longer maturity zero-coupon bonds all yield 11.50%. You are choosing between one, two, and three-year maturity bonds all paying annual coupons of 10.50%. You strongly believe that at year-end the yield curve will be flat at 11.50%. 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.)

b. Which bond you would buy?

• One-year bond

• Two-year bond

• Three-year bond