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(1) (2) (3) (4) Gain from position - (2) + (3) – (1) Position Position value at Position value if Mark to market initial gold price of gold price rises to $900/oz (= zero-PV £901/0z (= zero-PV forward and futures forward and futures price $991.10) cash price = $990) Hold I oz gold $900 $901 $0 Sell 1 futures -1.1 -1.1 contract Sell 1/1.1 futures 0 -1 -1 contracts Sell 1 forward 990 -1 = 1.1 - 901 -1 contract a Hold 1 07 of 900 901

(1) (2) (3) (4) Gain from position - (2) + (3) – (1) Position Position value at Position value if Mark to market initial gold price of gold price rises to $900/oz (= zero-PV £901/0z (= zero-PV forward and futures forward and futures price $991.10) cash price = $990) Hold I oz gold $900 $901 $0 Sell 1 futures -1.1 -1.1 contract Sell 1/1.1 futures 0 -1 -1 contracts Sell 1 forward 990 -1 = 1.1 - 901 -1 contract a Hold 1 07 of 900 901

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Exhibit 22.3 Hedging a Decline in the Price of Gold with Futures and Forwards (1) (2) (3) (4) Position Position value at Position value if Mark to market Gain from position - (2) + (3) – (1) initial gold price of gold price rises to $900/oz (= zero-PV £901/0z (= zero-PV cash forward and futures forward and futures price = $990) price $991.10) Höld I oz gold $900 $901 $0 $1 Sell 1 futures -1.1 -1.1 contract Sell 1/1.1 futures 0 -1 -1 contracts Sell 1 forward 990 -1 = -1 contract 1.1 – 901 a. Hold 1 oz of gold and sell 1 futures contract 900 901 -1.1 -0.1 b. Hold 1 oz of 900 901 -1 gold and sell 1/1.1 futures contracts c. Hold 1 oz of gold and sell 1 forward contract 900 900 = 901 – 1
Transcribed Image Text:Exhibit 22.3 Hedging a Decline in the Price of Gold with Futures and Forwards (1) (2) (3) (4) Position Position value at Position value if Mark to market Gain from position - (2) + (3) – (1) initial gold price of gold price rises to $900/oz (= zero-PV £901/0z (= zero-PV cash forward and futures forward and futures price = $990) price $991.10) Höld I oz gold $900 $901 $0 $1 Sell 1 futures -1.1 -1.1 contract Sell 1/1.1 futures 0 -1 -1 contracts Sell 1 forward 990 -1 = -1 contract 1.1 – 901 a. Hold 1 oz of gold and sell 1 futures contract 900 901 -1.1 -0.1 b. Hold 1 oz of 900 901 -1 gold and sell 1/1.1 futures contracts c. Hold 1 oz of gold and sell 1 forward contract 900 900 = 901 – 1
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