Calculate the one year total rate of return for three bonds

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Reference no: EM131020193

Currently, the term structure is as follows: One-year bonds yield 7.50%, two-year bonds yield 8.50%, three-year bonds and greater maturity bonds all yield 9.50%. You are choosing between one-, two-, and three-year maturity bonds all paying annual coupons of 8.50%, once a year. You strongly believe that at year-end the yield curve will be flat at 9.50%.

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.)

One Year Two Years Three Years

One year total rate of return % % %

Reference no: EM131020193

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