Finance 4720Class Homework #1Professor Joel Rentzler

To keep things simple, assume that all prices are continuous and that any size order may be filled if an action (trigger) price is hit.

1. The current price per ounce for a gold futures contract is $400.You believe if the price moves up by $10 that this contract would be fundamentally overpriced.What order would you place with your broker now to try to trade on this belief?

2. The current price per ounce for a gold futures contract is $400.You believe if the price moves down by $10 that this contract will be fundamentally underpriced.What order would you place with your broker now to trade on this belief?

3. The current price for a gold futures contract is $400.You believe if the price moves up by $10 that it will be in an upward trend.What order would you place with your broker now to try to trade on this momentum movement belief?

4. The current price per ounce for a gold futures contract is $400.You believe if the price moves down by $10 that it will be in a downward trend.What order would you place with your broker now to try to trade on this momentum movement belief?

5. Last week you sold a gold futures contract at $390 per ounce.The current price for a gold futures contract is $400 and so you are now losing $10/oz.You do not want to incur a loss of more than $20/oz.What order would you place with your broker now to try to limit your loss to this amount?

6. Last week you sold a gold futures contract at $415 per ounce.The current price per ounce for a gold futures contract is $400 and so you are now ahead by $15/oz.You would like it if the price of gold keeps falling, but you want to try to insure that you close out this trade with a gain of at least $5/oz.What order would you place with your broker now to try to accomplish this?