BUS 419 Midterm: BUS 419 Midterm

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 419
• Professor: all

Document Summary

For questions with multiple parts, e. g. , a) and b), answer all parts. Assignment is due at the start of class one week from the date of the thursday class it is handed out. Do all 3 questions; be sure to answer all parts of the question. (total length 3 pages: a) explain the arbitrage underlying the covered interest parity theorem. What risk-free true yield interest rate (bond equivalent yield) on canadian dollar instruments would be consistent with the interest-rate-parity theorem if the one, three and six month. Us discount rates were: 1. 00%, 1. 03% and 1. 07% and the one year (true yield) bond yield was. Be as complete as possible in explaining your answer. 2. a) derive the profit profile for a spread trade with equal position sizes. Derive the profit profile for a tailed spread and explain how this trade is different from a trade with one-to-one position sizes.