Suppose the price of gold is $440 per ounce in May and you feel: the price is go

Question

Suppose the price of gold is $440 per ounce in May and you feel: the price is going to move up sharply in the future months so you buy an October gold contract for a futures contract settle price of $460 per ounce. Calculate the profit or loss from these transactions if the contracts are liquidated in September when the October gold future settle price is 1) $400 per ounce, 2) $500 per ounce.

A) Case 1: 4,000 loss; Case 2: 6,000 gain
B) Case 1: 4,000 loss; Case 2: 6,000 gain
C) Case 1: 6,000 gain; Case 2: 4,000 loss
D) Case 1: 6,000 loss; Case 2: 4,000 gain

Explanation / Answer

Assumin 100contracts.

1) price = 400 , loss = (460 - 400 ) = $ 60 per contract .so total loss = 60 *100= $ 6000 loss

2)Prics = 500 , Gain = (460 -500 ) = $ -40 per contract , so total gain = 40*100 = $ 4000 gain

correct otpion is "D" -Case 1 6000 loss , case 2 , 4000 gain

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