Question

Look at the futures listings for corn in Figure 2.10.

a. Suppose you buy one contract for December 2011 delivery. If the contract closes in December at a price of $6.43 per bushel, what will be your profit or loss? (Each contract calls for delivery of 5,000 bushels.)

b. How many December 2011 maturity contracts are outstanding?

Short answer

a. $ 300 gain

b. 487465 contracts outstanding

Step-by-step solution

Definition

Future contracts are obligation to traders to purchase or sell an asset at an agreed upon price at a specified future date

Solution for ‘a’

a. The December maturity futures price is $6.37 per bushel. If the contract closes at $6.43 per bushel in December, your profit / loss on each contract (for delivery of 5,000 bushels of corn) will be: ($6.43 - $6.37) x 5000 = $ 300 gain.

Solution for ‘b’

b. There are 487,465 contracts outstanding in December 2011.