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Currently, the term structure is as follows: One-year bonds yield 8.75%, two-year bonds yield 9.75%,...

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Accounting

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Currently, the term structure is as follows: One-year bonds yield 8.75%, two-year bonds yield 9.75%, three-year bonds and greater maturity bonds all yield 10.75%. You are choosing between one-, two-, and three-year maturity bonds all paying annual coupons of 9.75%, once a year. You strongly believe that at year end the yield curve will be flat at 10.75%. Calculate the one year total rate of return for the three bonds. (Do not round intermediate calculations. Round your answers to: decimal places.) Which bond you would buy? One-year bond Two-year bond Three-year bond

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