Bond Yields (Lowest to Highest)

[michaelgrogan]

An investor is presented with the following securities, each of which is equally risky:

Security 1 will mature in 1 year and its effective annual yield is 3.0%.
Security 2 will mature in 2 years and its bank discount yield is 3.0%.
Security 3 will mature in 3 years and its holding period return is 8.75%.

Which security provides the highest annualised yield?

a. Security 1.
b. Security 2.
c. Security 3.

Here, the answer is (c); Security 3. The only way I can arrive at this answer is because the yield of 8.75% is higher than the other two, so it seems the most plausible answer.

If we were assuming that the yield across all of the securities is 3%; as a general rule can someone please tell me is the below correct?

Effective Annual Yield < Money Market Yield < Bank Discount Yield < Holding Period Yield

I would appreciate any advice.

 

[S2000magician]

michaelgrogan wrote:An investor is presented with the following securities, each of which is equally risky:
Security 1 will mature in 1 year and its effective annual yield is 3.0%.
Security 2 will mature in 2 years and its bank discount yield is 3.0%.
Security 3 will mature in 3 years and its holding period return is 8.75%.
Which security provides the highest annualised yield?
a. Security 1.
b. Security 2.
c. Security 3.
Here, the answer is (c); Security 3. The only way I can arrive at this answer is because the yield of 8.75% is higher than the other two, so it seems the most plausible answer.
If we were assuming that the yield across all of the securities is 3%; as a general rule can someone please tell me is the below correct?
Effective Annual Yield < Money Market Yield < Bank Discount Yield < Holding Period Yield
I would appreciate any advice.

Let’s take each relationship separately:
Effective Annual Yield < Money Market Yield
Nope.
Money Market Yield < Bank Discount Yield
Nope.
Bank Discount Yield < Holding Period Yield
Nope.
I wrote a couple of articles that may be of help here: http://financialexamhelp123.com/yield-measures-quant/, and http://financialexamhelp123.com/comparing-yield-measures-quant/.