Question

Use the following corn futures quotes: Corn 5,000 bushels Contract Month Open High Low Settle Chg Open Int Mar 455.125 457.000 451.750 452.000 −2.750 597,913 May 467.000 468.000 463.000 463.250 −2.750 137,547 July 477.000 477.500 472.500 473.000 −2.000 153,164 Sep 475.000 475.500 471.750 472.250 −2.000 29,258

Suppose you buy 18 of the September corn futures contracts at the last price of the day. One month from now, the futures price of this contract is 462.5, and you close out your position. Calculate your dollar profit on this investment. (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Contract Month Open High Low Settle   Chg Open Int

Sep - 475.000 - 475.500 - 471.750 - 472.250 −2.000 29,258

Given that

we buy 18 September corn Futures contracts at the closing price of the day.

Closing Price = 472.250 (This means 472.250 Cents per Bushel)

1 Contract = 5000 Bushels

So, we have contracted to buy 90,000 Bushels (5000 Bushels x 18 Contracts ) at the rate of 472.250 Cents per Bushel in September.

After 1 Month, the Futures Price of the Sept Contracts is 462.5, and we want to close our position.

This means that we will sell the 18 Sept Futures Contracts @462.5

This means we will contract to sell 90,000 Bushels (5000 Bushels x 18 Comtracts) at the rate of 462.5 Cents per Bushel in September, thus closing our previous position ( written in bold above)

Thus, we entered to buy at 472.250 and now we are selling at 462.5. Thus there is a loss of 9.75 Cents per Bushel

Profit per Bushel = Selling rate - buying rate = 462.5 - 472.25 = -9.75 cents

Dollar Profit on the investment = 18 Contracts x 5000 Bushels x (Selling Rate - Buying Rate)

= 18 x 5000 x (462.5 - 472.25) cents = -877,500 cents = $-8,775.00

Thus there is a loss of $8,775 ( or profit of $ -8,775)