Currently, the term structure is as follows: One-year bonds yield 10.75%, two-year zero-coupon bonds yield 11.75%, three-year and longer maturity zero-coupon bonds all yield 12.75%. You are choosing between one, two, and three-year maturity bonds all paying annual coupons of 11.75%. You strongly believe that at year-end the yield curve will be flat at 12.75%.

Calculate the one year total rate of return for the three bonds.

Which bond you would buy?