BONUS QUESTION #2: (10 Marks)

You think todays Feeder cattle futures contract @ 70cents/ lb (40,000 lbs/contract) due in 4 months is too low compared to the Live cattle contract @ 65 cents/lb (50,000 lbs/contract) due in 10 months. Explain what positions you would take today in order to profit from this expectation. Calculate and explain your profit/loss if you reverse your positions in a few weeks for Feeder @ 80 cents and Live @ 77 cents. Repeat this for Feeder at 60 cents and Live @ 47 cents.