Chapter 21, Problem 2PS

Summary Introduction

To think critically about:

The relationship between income yield and time spread is to be explained. The impact of increase in income yield over the time-spread is to be determined.

Introduction:

Time spread is the hedging technique. It involves simultaneously buying and selling the contract of same underlying stock at similar price with different maturity period. It means investor is purchasing a contract of long - maturity and selling the contract of short- maturity.