Suppose that you need to pay $35,000 in three years and that you can finance this...
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Suppose that you need to pay $35,000 in three years and that you can finance this with zero-coupon bonds yielding 5.5% with terms of two years and six years. Imagine that you spend $22,354.86 purchasing a two-year bond and $7,451.62 for a six-year bond, and these are each priced to yield 5.5%. Suppose also that, at the end of two years, no matter what the yield rate i may then be, you sell the remaining bond at a purchase price to yield i, combine the proceeds with the $24,881.52 Suppose that you need to pay $35,000 in three years and that you can finance this with zero-coupon bonds yielding 5.5% with terms of two years and six years. Imagine that you spend $22,354.86 purchasing a two-year bond and $7,451.62 for a six-year bond, and these are each priced to yield 5.5%. Suppose also that, at the end of two years, no matter what the yield rate i may then be, you sell the remaining bond at a purchase price to yield i, combine the proceeds with the $24,881.52
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