Suppose that it is january 15 now. A copper fabricator knows it will require 100,000 pounds of copper on May 15 to meet a certain contract. So he takes a long position in the future contract. At that time the spot price of copper is 140 cents per pound and the May futures price is 120 cents per pound. Each contract is for the delivery of 25,000 pounds of copper.   If the cost of copper on May 15 is 125 cents per pound, what is the effective price this copper fabricator pays per pound?   a. Around 125 cents   b. Around 105 cents   c. Around 140 cents   d. Around 120 cents   e. Around 115 cents

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Suppose that it is january 15 now. A copper fabricator knows it will require 100,000 pounds of copper on May 15 to meet a certain contract. So he takes a long position in the future contract. At that time the spot price of copper is 140 cents per pound and the May futures price is 120 cents per pound. Each contract is for the delivery of 25,000 pounds of copper.

 

If the cost of copper on May 15 is 125 cents per pound, what is the effective price this copper fabricator pays per pound?

 

a. Around 125 cents

 

b. Around 105 cents

 

c. Around 140 cents

 

d. Around 120 cents

 

e. Around 115 cents

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