Chapter 17 Excel Application: Parity and Spreads
1. Experiment with different values for both income yield and interest rate. What happens to
the size of the time spread (the difference in futures prices for the long versus short
maturity contracts) if the interest rate increases by 2%?
First note the difference in the output in cells E9 (102.66) and E7 (101.26) for the base case
(Interest rate = 4.5%). The difference is 1.40 between the third maturity date and the first
maturity date.
2. What happens to the time spread if the income yield increases by 2%?
First return values to base case (Interest Rate = 4.5%).
[Change cells: 6 4.5]B=
3. What happens to the spread if the income yield equals the interest rate?