You enter into 10 short soybean futures contract (each contract is for 5000 bushel) for delivery of # 2 Yellow at a contract price of $14.00/bushel. The delivery grades are #2 Yellow at contract price, #1 Yellow at a 6 cent/bushel premium, #3 Yellow at a 6 cent/bushel discount. On the day the contract expires, the spot prices for # 2 Yellow are $14.02 cents/bushel , # 1 Yellow are $14.08 cents/bushel and # 3 Yellow are # $13.93 /bushel. Which grade should you deliver if you want to maximize your profit and how much profit will you earn? O None of these O #1 for $1,000 profit O #3 for $3,500 profit O #3 for $500 profit O #1 for $4,000 profit
You enter into 10 short soybean futures contract (each contract is for 5000 bushel) for delivery of # 2 Yellow at a contract price of $14.00/bushel. The delivery grades are #2 Yellow at contract price, #1 Yellow at a 6 cent/bushel premium, #3 Yellow at a 6 cent/bushel discount. On the day the contract expires, the spot prices for # 2 Yellow are $14.02 cents/bushel , # 1 Yellow are $14.08 cents/bushel and # 3 Yellow are # $13.93 /bushel. Which grade should you deliver if you want to maximize your profit and how much profit will you earn? O None of these O #1 for $1,000 profit O #3 for $3,500 profit O #3 for $500 profit O #1 for $4,000 profit
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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Transcribed Image Text:**Soybean Futures Contract Analysis**
You enter into 10 short soybean futures contracts (each contract is for 5,000 bushels) for delivery of #2 Yellow at a contract price of $14.00 per bushel. The delivery grades are:
- #2 Yellow at contract price
- #1 Yellow at a 6 cent/bushel premium
- #3 Yellow at a 6 cent/bushel discount
On the day the contract expires, the spot prices are:
- #2 Yellow: $14.02 cents/bushel
- #1 Yellow: $14.08/bushel
- #3 Yellow: $13.93/bushel
**Question:**
Which grade should you deliver if you want to maximize your profit, and how much profit will you earn?
**Options:**
- None of these
- #1 for $1,000 profit
- #3 for $3,500 profit
- #3 for $500 profit
- #1 for $4,000 profit
Expert Solution
Step 1
A short position in futures have been taken where the contracted price on three different grades of an item. We have to find out the grade that will be delivered on expiry of the future leading to maximum profit.
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