Ross5eChap26sm

Ross5eChap26sm - Answers to EndofChapter Problems B 382...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Answers to EndofChapter Problems B 382 Chapter 26: Derivatives and Hedging Risk 26.2 a. 1. Since the futures price of wheat is $3.09 per bushel at the end of trading on March 18, the delivery price on that date is $3.09 per bushel. 2. On the delivery date, the long and short positions in a futures contract transact with the clearing corporation at the current futures price. Therefore, you will pay the current futures price of $3.09 per barrel in order to receive the wheat. The difference between the price that you pay at delivery and the price at which you entered into the contract is reconciled by daily markedtomarket gains and losses. 3. On March 15, you entered into a long futures position in wheat at a price of $3.00 per bushel. Since the closing futures price is $3.06 per bushel, your account receives a cash inflow of $0.06 at the end of the day. Your position in wheat futures increases to $3.06 per bushel (= $3.00 + $0.06). On March 16, your opening long position in wheat futures is $3.06 per bushel. Since the closing futures price is $3.11 per bushel, your account receives a cash inflow of $0.05 at the end of the day. Your position in wheat futures increases to $3.11 per bushel (= $3.00 + $0.06+ $0.05). On March 17, your opening long position in wheat futures is $3.11 per bushel. Since the closing futures price is $3.16 per bushel, your account receives a cash inflow of $0.05 at the end of the day. Your position in wheat futures increases to $3.16 per bushel (= $3.00 + $0.06 + $0.05 + $0.05). On March 18, your opening long position in wheat futures is $3.16 per bushel. Since the closing futures price is $3.09 per bushel, your account experiences a cash outflow of $0.07 at the end of the day. Your position in wheat futures decreases to $3.09 per bushel (=$3.00 + $0.06 + $0.05 + $0.05 $0.07). Since you receive a notice of delivery on this date, you will pay the $3.09 futures price and receive 1 bushel of wheat. 4. The following is a summary of your futures position: Therefore, the net amount that you pay for one bushel of wheat is $3.00 per bushel. b. 1. Since the futures price wheat is $3.07 per bushel at the end of trading on March 19, the delivery price on that date is $3.07 per bushel. 2. On the delivery date, the long and short positions in a futures contract transact with the clearing corporation at the current futures price. Therefore, you will pay the Cash Flow March 15 Enter into Long Futures Positon at $3.00 per bushel None March 15 Futures Price Increases to $3.06 per bushel $0.06 March 16 Futures Price Increases to $3.11 per bushel $0.05 March 17 Futures Price Increases to $3.16 per bushel $0.05 March 18 Futures Price Decreases to $3.09 per bushel-$0.07 March 18 Pay Futures Price of $3.07 at Delivery-$3.07 Event Answers to EndofChapter Problems B 383 current futures price of $3.07 per barrel in order to receive the wheat. The difference between the price that you pay at delivery and the price at which you...
View Full Document

Page1 / 8

Ross5eChap26sm - Answers to EndofChapter Problems B 382...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online