Joseph bought a contract for future delivery of 5000 bushels of corn at $2.80 per bushel and sold a later contract at $2.90 a bushel. A month later, corn prices were rising and Joseph sold his long contract for $3.10 per bushel and covered his short by purchasing the same contract for $3.25 per bushel. Ignoring trading costs, Joseph
A) broke even.
B) made $500.
C) lost $750.
D) made $750.

Question

Quizplus · Accepted Answer

To determine Joseph's profit or loss, we need to calculate the gain or loss on each contract.

For the first contract: 
- Joseph bought 5000 bushels at $2.80 per bushel, for a total cost of $14,000. 
- Later, he sold the contract at $2.90 per bushel, for a total revenue of 5000 x $2.90 = $14,500. 
- Therefore, he made a profit of $500 ($14,500 - $14,000) on this contract.

For the second contract: 
- Joseph sold the contract at $3.10 per bushel, for a total revenue of 5000 x $3.10 = $15,500. 
- Later, he covered his short by purchasing the same contract at $3.25 per bushel, for a total cost of 5000 x $3.25 = $16,250. 
- Therefore, he made a profit of $750 ($15,500 - $16,250) on this contract.

Overall, Joseph made a profit of $1,250 ($500 + $750) on these two contracts.

Joseph Bought a Contract for Future Delivery of 5000 Bushels