What is the total-expected return offered by security

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Suppose an investor with a12-year investment horizon is considering the purchase of a 4.5% APR, monthly payment mortgage with 23years (276months) remaining until maturity. The mortgage currently has an outstanding balance of $220,000 and is selling to offer a YTM of 4.8% on the secondary market. The potential investor believes she will be able to reinvestment the first sixty(five years worth of) interim cashflows at a rate of 4.2% (per year) over their entire investable life. Due to expected increases in market wide interest rates, she expects to be able to investment final eighty-four(seven years worth of) cashflows at a rate of 4.8% (per year)over their entire investable life. At the end of her investment horizon, she expects to be able to sell the mortgage at a YTM of 4.8%. What is the total/expected (effective) return offered by this security?

Reference no: EM132853767

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