Question
Your utility company will need to buy 125,000 barrels of oil in 10 days? time, and it is worried about fuel costs. Suppose you go
Your utility company will need to buy 125,000 barrels of oil in 10 days? time, and it is worried about fuel costs. Suppose you go long 125 oil futures? contracts, each for 1,000 barrels of? oil, at the current futures price of $ 60.00 per barrel. Suppose futures prices change each day as follows LOADING... . a. What is the? mark-to-market profit or loss? (in dollars) that you will have on each? date? b. What is your total profit or loss after 10 ?days? Have you been protected against a rise in oil? prices? c. What is the largest cumulative loss you will experience over the 10?-day ?period? In what case might this be a? problem?
Day 8 $59.75 Price Change $___________ Profit Loss $ ________________
Day 9 $61.75 Price Change $____________ Profit Loss $ ________________
Day 10 $62.50 Price Change $ ____________ Profit Loss $ ________________
b. What is your total profit or loss after 10 days? Have you been protected against a rise in oil? prices????(Select from the? drop-down menus.) PLEASE SELECT ONE FROM THE DROP BOX
Summing the daily? profit/loss amounts, the total is a gain of
?
$281,250
$312,500
$375,000
. This gain offsets your increase in cost from the overall
?
$2.25
$2.50
$3.00
increase in oil prices over the
1010
?days, which increases your total cost of oil by
?
$375,000
$281,250
$312,500
.
c. What is the largest cumulative loss you will experience over the 10?-day
?period? In what case might this be a? problem????(Select all the choices that? apply.)
A.
After the second? day, you have lost a total of $250,000.
B.
After the third? day, you have lost a total of $281,250.
C.
After the second? day, you have lost a total of $312,500.
D.
This loss could be a problem if you do not have sufficient resources to cover the loss. In that? case, your position would have been liquidated on day? 2, and you would have been stuck with the loss and had to pay the higher cost of oil on day 10.
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