4. You work for Cao Chemical International, and your company regularly uses platinum as a catalyst for chemical reactions. To hedge your exposure to the price of platinum, you convince your boss to let you use futures contracts. Your company expects that it will need 1,000 troy ounces of platinum in 3 months. The price on a 3-month platinum future contract is $873.42 per troy ounce. A platinum futures contract is for 50 troy ounces. (2.50 Points)

(a) How many contracts will you need to cover your exposure, and what will it cost you initially?

(b) Create a payoff and profit diagram of this position. Be sure to label all axis.

(b) In 3 months, the spot price of platinum is $900.42/oz. What is your total profit assuming you close the position and do not take delivery?

(c) If the spot price is $800/oz what is your total profit?

(d) Does it matter if your futures contracts earn a profit? Why or why not?