Currently the term structure is as follows: one-year bonds yield 5 percent, two-year bonds yield 6 percent, three-year bonds and greater maturity bonds all yield 7 percent. An investor with a one-year investment horizon is choosing between one-, two-, and three-year maturity bonds all paying annual coupons of 6 percent, once a year.

a) Which bonds should you buy if you strongly believe that at year-end the yield curve will be flat at 7 percent? Show your calculations.

Already have the solution (the picture), but need to know how to calculate the highlighted numbers, please show your steps.

QUESTION 1: Part (a): Maturity: YTM at beginning of year Beginning of year prices Prices at year end (at 7\% YTM) Capital gain (loss) \begin{tabular}{ccc} 1 & 2 & 3 \\ \hline 5% & 6% & 7% \\ $1,009.52 & $1,000.54 & $975.82 \\ $1,000.00 & $990.65 & $981.92 \\ $9.52 & $9.88 & $6.10 \\ $60.00 & $60.00 & $60.00 \\ \hline 5.00% & 5.01% & 6.77% \end{tabular} 1-year total rate of return