Wkshp6.soln.2008

# Wkshp6.soln.2008 - THE UNIVERSITY OF AUCKLAND Department of...

This preview shows pages 1–2. Sign up to view the full content.

THE UNIVERSITY OF AUCKLAND Department of Accounting and Finance FINANCE 261 Introduction to Investments SOLUTION: WORKSHOP 6 1. Scenario 1 (gold spot price increases to \$950 per ounce on 15 June) Go forward to 15 June and suppose that the gold spot price at that time is \$950. Since the futures price expiring on 15 June converges to the spot price, the gold futures contract is also trading at \$950 per ounce. To close out your futures position, you long (buy) the futures at \$950 per ounce. Overall, you lose \$920 - \$950 = -\$30 from your futures position (since you bought at a higher futures price but sold at a lower futures price). At the same time, you sell an ounce of gold at the spot price of \$950. Your total cash inflow is \$950 - \$30 = \$920. Scenario 2 (gold spot price decreases to \$880 per ounce on 15 June) Go forward to 15 June and the gold spot price at that time is \$880. Since the futures price expiring on 15 June converges to the spot price, the gold futures are also trading at \$880 per ounce. To close out your futures position, you buy the futures contract at \$880 per ounce. Overall, you gain \$920 - \$880= \$40 from your futures position (since you bought at a lower futures price but sold at a higher futures price). At the same time, you sell an ounce of gold at the spot price of \$880. Your total cash

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 4

Wkshp6.soln.2008 - THE UNIVERSITY OF AUCKLAND Department of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online