After 4 months the new spot price is R140. What will be the profit or loss to the short position in month 4?

Given the following information below.

Spot = R100
Risk-free = 10%
Maturity = 1 year
After 4 months the new spot price is R140. What will be the profit or loss to the short position in month 4?

Expert Solution

Futures price after 4 months

Future price = R100 * (1 + 10%)^{(4 / 12)}

Future price = R103.23

Profit/Loss to short position in month 4 = Futures price in month 4 - Spot price in month 4

Profit/Loss to short position in month 4 = R103.23 - R140

Profit/Loss to short position in month 4 = - R36.77

Loss to short position in month 4 = R36.77

jeff jeffy answered 2 years ago

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