Question
Problem-01a: Current crude oil price is $52.00 per barrel. You sell (short position) 5, five, crude oil futures contracts at futures price of $54.00 per
Problem-01a: Current crude oil price is $52.00 per barrel. You sell (short position) 5, five, crude oil futures contracts at futures price of $54.00 per barrel with maturity of one month. (Size of the contract is 5) Note that the size of one futures contract is 1,000 barrels.
- What is your profit if the crude oil price is $57.00 at maturity and assume cash settlement for this problem?
ii. What is your profit if the crude oil price is $49.00 at maturity and assume cash settlement for this problem?
Problem-01b: Using information in problem-01a:
- Graph your profit/loss function for likely crude oil prices between $20 and $80 in increments of $5.00 at maturity. Label both axes properly!
- Show the profit and loss for the likely prices in problem-01a, only two data points. Note that you already calculated them in 01a. Just add your findings to the graph as two data points.
Problem-02a: Current S&P Index is at 2,645. Suppose you take a long (buy) position on 6, six, S&P 500 futures contracts when the futures price of the index is 2700.00. Assume that maturity of the futures contracts is one-month. (Size of the contract is 6) Note that the size of one futures contract is equal to ($250)x(Index Value).
- What is your profit/loss if S&P 500 index is 2630.00 at maturity?
ii. What is your profit/loss if S&P 500 index is 2780.00 at maturity?
Problem-02b: Using information in problem 02a:
i. Graph your profit/loss function for likely S&P 500 index numbers between 2500.00 and 2900.00 in increments of 20 at maturity. Label both axes properly!
ii. Show the profit and loss for the likely prices in problem-02a. Note that you already calculated them in 02a. Just add your findings to the graph as two data points.
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