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Timmy needs $100,000 for his home in two years. Suppose he could buy a two year T-Strip with a YTM of 10% for $892.1, or
Timmy needs $100,000 for his home in two years. Suppose he could buy a two year T-Strip with a YTM of 10% for $892.1, or he could purchase a three T-Strip for $731.2? If the interest rate remains the constant on the 3-year bond, then what price can he sell the 3-year bond for in the 2nd year? Timmy believes the one year rate in the third year will be 11%.
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