The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers : A. -1,271 B. 0 C. 1,271 D. 2,502 E. 3,773
The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers : A. -1,271 B. 0 C. 1,271 D. 2,502 E. 3,773
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
Related questions
Question
The current spot price for one ounce of gold is 1,238.74.
Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months.
Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%.
What is the total profit realized by Company B after 9 months?
Possible Answers :
A. -1,271
B. 0
C. 1,271
D. 2,502
E. 3,773
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education