Use the following corn futures quotes: 1. How many of the May contracts are curr

Question

Use the following corn futures quotes:

1. How many of the May contracts are currently open?

2. How many of these contracts should you sell if you wish to deliver 125,000 bushels of corn in May?

3. If you actually make delivery, how much will you receive? Assume you locked in the settle price. (Do not round intermediate calculations. Round your answer to the nearest whold dollar.)

  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

Explanation / Answer

Answer to 1)

The number of May contracts currently open = 137547

Answer to 2)

If one wishes to deliver 125000 bushels, he/she should sell

= (number of bushels to be sold) / (size of one future contract)

= 125000 / 5000 = 25 corn future contracts.

Answer to 3)

Note: Because the last few minutes of trading are often the busiest part of the day, with many trades occurring simultaneously, the exchange computes a settlement price from the range of closing prices. The settlement price, which is abbreviated as settle in most pricing tables, is used by the clearing house to calculate the market value of outstanding positions held by its members.

The price for actual delivery is locked in the settle price.

The settle price for May is given as 463.250 cents per bushels = $4.6325 per bushel.

Selling 125000 bushels at this settlement price one can expect to get

= 125000 x 4.6325

= $579063 (rounded off to nearest whole number)

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