Question

You sold one corn future contract at $2.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is 5,000 bushels and there are no transactions costs.
A) $950 profit.
B) $95 profit.
C) $950 loss.
D) $95 loss.
E) None of the options are correct.

Answer 1

Answer:

A) $950 profit.

Explanation:

the spot price is $2.10, but you are selling at $2.29. This means that you are making a $2.29 - $2.10 = $0.19 profit per bushel. Since the contract is for 5,000 bushels, then your total profit = 5,000 bushels x $0.19 per bushel = $950

on the other hand, if you had purchased the futures contract, you would have lost the $950.