What is expected overall yield of option two of securities

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Reference no: EM131983372

Investor A has a time horizon of 4 years. A can choose between 2 options of securities:

Option 1. A single discount 4 year bond with a yield to maturity of 8%.

Option 2. A single discount bond purchased now and maturing in one year with a yield to maturity of 7%, a one-year discount bond purchased in one year with an expected yield of 8.5%, a one-year discount bond purchased in 2 years with an expected maturity of 7.75% and a one-year discount bond purchased in 3 years with an expected yield of 9%.

What is the expected overall yield of option 2 of securities for the four year period, then which asset has the highest return over the 4-year period?

Reference no: EM131983372

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