Asked by Betty Hicks on Jul 09, 2024
Verified
You purchased one corn future contract at $5.30 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $5.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.
A) $1000 profit
B) $20 profit
C) $1000 loss
D) $20 loss
E) None of the options are correct.
Corn Future
A standardized contract to buy or sell a specified amount of corn at a future date and price, traded on commodities exchanges.
Spot Price
The prevailing market rate where a specific asset, including commodities, currencies, or securities, can be purchased or sold for prompt distribution.
Loss
The reduction in the value of an investment or the difference between the purchase price and the lower selling price.
- Understand thoroughly the intricacies of profit and loss in futures trading operations.
Verified Answer
VN
Vinny NicastroJul 16, 2024
Final Answer :
C
Explanation :
The profit or loss is calculated by taking the difference between the purchase price and the spot price at maturity, then multiplying by the contract size. Here, the loss per bushel is $5.30 - $5.10 = $0.20. For 5,000 bushels, the total loss is $0.20 * 5,000 = $1,000.
Learning Objectives
- Understand thoroughly the intricacies of profit and loss in futures trading operations.