Answer aLLL

Suppose it is in December 2021, you expect the price of corn to increase over the next 3 month, (assume corn futures are traded in an exchange traded house on the typical 3-mth cycles). (i) Given the following information, what can you do to take advantage of your expectation? You have $20,000 to invest. Initial margin = 10% Contract size = 5000 kg Current spot = $5 per kg Transaction cost = $55 per contract (per round trip) (2 marks) (ii) Suppose corn price goes up to $6.50 per kg over the next 3 months, what is your net return in $ and in % given your position in (a). (2 marks) (iii) What would your net return in $ and % be if corn price is at $4.25 in 3 months? (2 marks) (iv) Explain why the results in (b) and (c) are so different