Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Today is 04/30/20xy. You have a commodity to sell in a month, and you would like to lock the price at $40 by hedging with

image text in transcribed
Today is 04/30/20xy. You have a commodity to sell in a month, and you would like to lock the price at $40 by hedging with futures. Since you are not selling a professionally traded commodity, you take a modified version of futures contract which is marked to the market every week as opposed to every day. The margin account is no-interest-bearing and is not invested on other risk-free securities. The futures price of the commodity you are selling is $42 on 05/01, $39 on 05/08, $41 on 05/15, $37 on 05/22, $39 on 05/29. Assume you enter the contract today and will make the delivery on 05/30, using the 05/29 price. Build a cash flow table of the futures contract on the date listed above (4/30 -5/30) in the format of the table shown in class, showing all the calculation details. Show the profit/loss you have made by using the futures contract

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Basics Of Public Budgeting And Financial Management

Authors: Charles E. Menifield

4th Edition

0761872116, 978-0761872115

More Books

Students also viewed these Finance questions