Explain why a financial asset can be viewed as a package of zero-coupon instruments

What will be an ideal response?

A financial asset generates cash flows over time. The value of the asset is the present value of all the cash flows. Because each cash flow can occur at a different point in time, each cash flow should be valued in today's dollar using a discount rate that reflects the required rate of return associated with that time period. Thus, each cash flow is like a zero-coupon bond where today's value for the zero-coupon bond is the discounted value of the zero-coupon's promised maturity value (e.g., cash flow at a point in time). The discount rate for the zero-coupon bond is its spot rate which can differ from one time period to the next. So too, the cash flows generated by the financial asset should have discount rates that differ from one time period to the next.