Assume all bonds pay semi-annual coupons unless otherwise instructed. Assume all bonds have par values per contract of $1,000.

Initial margins on equity are 50% with a 40% maintenance margin. Initial margins on short sales are 150% (50%) with a 130% (30%) maintenance margin.

Futures contract information:

Soybeans: price quote (e.g., 1184) is cents/bushel; contract size 5,000 bushels; margin is $4,725/contract

Crude oil: price quote (e.g., 98.65) is dollars/barrel; contract size 1,000 barrels; margin is $9,000/contract

Gold: price quote (e.g., 1,955.50) is dollars/ounce; contract size 100 ounces

1. KCB, Corp. wants to set up a hedge on its expected February sale of 500,000 barrels of crude oil. KCB plans to use the March crude oil futures contract to hedge its sale. The current spot price for crude oil is 91.15 and the current March crude oil futures price is 92.28.
   1. In February when KCB makes its crude oil sale and unwinds its hedge the crude oil spot price is 92.71 and the March futures price is 92.98. What would be KCBs profit/loss on its futures position?
   2. What is the effective price per barrel KCB receives for its crude oil?
   3. Did the basis widen or narrow from the time KCB opened its futures position to the time it closed its position?
   4. Suppose instead that in February the spot price is 90.69 and the March futures price is 91.02. What is the effective price per barrel KCB receives for its crude oil?