Question 1

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 ounces and there are no transactions costs.

Accepted Answer

The profit is calculated as the difference between the selling price and the spot price, multiplied by the contract size. ($2.29 - $2.10) * 5,000 = $950 profit.

Question 2

On January 1,the listed spot and futures prices of a Treasury bond were 93.8 and 93.13.You purchased $100,000 par value Treasury bonds and sold one Treasury bond futures contract.One month later,the listed spot price and futures prices were 94 and 94.09,respectively.If you were to liquidate your position,your profits would be

Accepted Answer

The spot price increased from 93.8 to 94, resulting in a gain of $200 (0.2% of $100,000) on the bond. The futures price increased from 93.13 to 94.09, resulting in a loss of $960 (0.96% of $100,000) on the futures contract. The net result is a loss of $760 - $200 = $125.

Question 3

Metals and energy currency futures contracts are actively traded on

Accepted Answer

Metals like gold and silver, as well as energy commodities like propane, are all actively traded in futures markets.

Question 4

You purchased 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 ounces and there are no transactions costs.

Accepted Answer

The profit or loss on a futures contract is calculated as (Futures price at purchase - Futures price at maturity) * Contract size.

In this case, the futures price at purchase is $2.29 per bushel, and the contract size is 5,000 ounces. Therefore, the total contract value is:

$2.29/bushel * 5,000 ounces = $11,450

If the spot price of corn at maturity is $2.10 per bushel, then the futures price at maturity would also be approximately $2.10 per bushel (assuming no storage costs or other factors that might influence the futures price).

So the profit or loss on the futures contract would be:

($2.29/bushel - $2.10/bushel) * 5,000 ounces = $950 loss

Therefore, the correct answer is C) $950 loss.

Question 5

An investor with a long position in Treasury notes futures will profit if

Accepted Answer

A long position in Treasury notes futures will profit if interest rates decline because the price of the Treasury notes will increase, leading to a gain for the investor.

Question 6

Foreign currency futures contracts are actively traded on the

Accepted Answer

Foreign currency futures contracts are actively traded on various currencies including the Japanese yen, Australian dollar, and Brazilian real among others. Therefore, option E (all of the above) is the best choice.

Question 7

You purchased one wheat future contract at $3.04 per bushel.What would be your profit (loss)at maturity if the wheat spot price at that time were $2.98 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

The profit or loss on a futures contract is calculated by taking the difference between the purchase price and the spot price at the time of maturity and multiplying it by the contract size.

Profit or loss = (Spot price at maturity - Purchase price) x Contract size

In this case, the purchase price is $3.04 per bushel, and the spot price at maturity is $2.98 per bushel.

Profit or loss = ($2.98 - $3.04) x 5000 = -$30 x 10 = -$300

Since the result is negative, it implies a loss of $300. Therefore, the best choice is,
C) $300 loss

Question 8

To exploit an expected increase in interest rates,an investor would most likely

Accepted Answer

When interest rates increase, bond prices fall. Selling Treasury bond futures allows the investor to profit from the expected decline in bond prices.

Question 9

Metals and energy currency futures contracts are actively traded on

Accepted Answer

The answer of Metals and energy currency futures contracts are...

Question 10

An increase in the basis will __________ a long hedger and __________ a short hedger.

Accepted Answer

The answer of An increase in the basis will __________...

Question 11

Interest rate futures contracts are actively traded on the

Accepted Answer

Interest rate futures contracts are actively traded on Eurodollars, Euroyen, and Sterling, making all the options correct.

Question 12

You purchased one silver future contract at $3 per ounce.What would be your profit (loss)at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

The profit would be calculated as (Spot price at maturity - Contract price) x Contract size. 
So, the profit would be (4.10 - 3) x 5000 = $5,500 profit.

Question 13

You sold one wheat future contract at $3.04 per bushel.What would be your profit (loss)at maturity if the wheat spot price at that time were $2.98 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

The profit is calculated as the difference between the selling price and the spot price at maturity, multiplied by the contract size. Here, ($3.04 - $2.98) * 5000 = $0.06 * 5000 = $300 profit.

Question 14

Foreign currency futures contracts are actively traded on the

Accepted Answer

Foreign currency futures contracts are actively traded on the Euro and British pound, making choices A and B correct. The Drachma is no longer in use as Greece now uses the Euro, so choice C is not correct. Therefore, the correct answer is choice D- A and B.

Question 15

Which one of the following statements regarding "basis" is true?

Accepted Answer

The basis is indeed the difference between the futures price and the spot price (A). The basis risk is borne by the hedger as it represents the risk that the basis will change unfavorably (B). The basis increases when the futures price increases by more than the spot price (D).

Question 16

Agricultural futures contracts are actively traded on

Accepted Answer

Agricultural futures contracts are actively traded on various commodities, including rice, sugar, canola, and many others. Therefore, choice E ("all of the above") is the correct answer.

Question 17

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index you could make an arbitrage profit by

Accepted Answer

If the futures are overpriced, you can sell the futures and buy the underlying stocks to profit from the price discrepancy when they converge.

Question 18

Which one of the following statements regarding "basis" is not true?

Accepted Answer

A short hedger benefits when the basis decreases, as they are selling futures and buying spot, so a decrease in basis (futures price falling relative to spot) is advantageous.

Question 19

You sold one silver future contract at $3 per ounce.What would be your profit (loss)at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

Accepted Answer

The profit (loss) is calculated as the difference between the selling price and the spot price at maturity, multiplied by the contract size. 
Profit (loss) = (Spot price at maturity - Selling price) * Contract size
Profit (loss) = ($4.10 - $3) * 5,000
Profit (loss) = $1.10 * 5,000
Profit (loss) = -$5,500 (loss)

Question 20

To hedge a long position in Treasury bonds,an investor most likely would

Accepted Answer

To hedge a long position in Treasury bonds, an investor would sell interest rate futures. This is because the value of Treasury bonds decreases as interest rates rise. By selling interest rate futures, the investor can offset any potential losses from a rise in interest rates. Buying interest rate futures (choice A) would increase the investor's exposure to interest rate risk. Selling S&P futures (choice B) would not hedge a long position in Treasury bonds as it is a completely different asset class. Buying Treasury bonds in the spot market (choice D) would increase the investor's exposure to Treasury bonds rather than hedging their current position. Therefore, the correct choice is C.

Quiz 22: Equity Valuation Models

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 ounces and there are no transactions costs.

Metals and energy currency futures contracts are actively traded on

You purchased 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 ounces and there are no transactions costs.

An investor with a long position in Treasury notes futures will profit if

Foreign currency futures contracts are actively traded on the

You purchased one wheat future contract at $3.04 per bushel.What would be your profit (loss) at maturity if the wheat spot price at that time were $2.98 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

To exploit an expected increase in interest rates,an investor would most likely

Metals and energy currency futures contracts are actively traded on

An increase in the basis will a long hedger and a short hedger.

Interest rate futures contracts are actively traded on the

You purchased one silver future contract at $3 per ounce.What would be your profit (loss) at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

You sold one wheat future contract at $3.04 per bushel.What would be your profit (loss) at maturity if the wheat spot price at that time were $2.98 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

Foreign currency futures contracts are actively traded on the

Which one of the following statements regarding "basis" is true?

Agricultural futures contracts are actively traded on

If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P 500 Index you could make an arbitrage profit by

Which one of the following statements regarding "basis" is not true?

You sold one silver future contract at $3 per ounce.What would be your profit (loss) at maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size is 5,000 ounces and there are no transactions costs.

To hedge a long position in Treasury bonds,an investor most likely would