Problem 3-6 Futures Profits (LO3, CFA4) The contract size for platinum futures i

Question

Problem 3-6 Futures Profits (LO3, CFA4) The contract size for platinum futures is 50 troy ounces. Suppose you need 450 troy ounces of platinum and the current futures price is $1,135 per ounce. How many contracts do you need to purchase? How much will you pay for your platinum? What is your dollar profit if platinum sells for $1,165 a troy ounce when the futures contract expires? What if the price is $1,080 at expiration? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole number.) ok int ences Contracts to purchase Purchase price Dollar proft at $1,165 Dollar proft at $1,080

Explanation / Answer

1.

Contracts to purchase = Requited number of commodity / Contract size

Contracts to purchase = 450/50

Contracts to purchase = 9

.

2.

Purchase price = $1,135

Additional info:

.

3.

Total purchase = 1135 x 9 contracts = $10,215

Total value at expiration = 1165 x 9 = $10,485

.

Dollar profit = Total value at expiration - Total purchase

Dollar profit = 10485 - 10215

Dollar profit = $270

.

4.

Total value at expiration = 1080 x 9 = $9,720

Dollar profit = Total value at expiration - Total purchase

Dollar profit = 9720 - 10215

Dollar profit = -$495

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