Gain/Loss
1 cent increase $1,000
1 cent decrease ($1,000)
Time 3 months
(Months)
Time Gain/Loss
0
1 0.39173321
2 0.11327503
3 0.2783319
4 0.58994843
5 0.0810679
6 0.90090388
7 0.68043158
8 0.96673823
9 0.8732369
10 0.87388578
11 0.07921713
12 0.99633429
13 0.98922703
14 0.13354968
15 0.91713193
16 0.65338651
17 0.45047934
18 0.29089539
19 0.58358764
20 0.31750931
21 0.40275529
22 0.68125957
23 0.15320978
24 0.17018851
Consider a company that knows it will gain
increase in the price of a commodity over th
lose $1000 for each 1 cent decrease in the
period. What is the strategy of the company
Cumulative Profit
any that knows it will gain $1000 for each 1 cent
ice of a commodity over the next three months and
ch 1 cent decrease in the price during the same
he strategy of the company on the futures contract?
March Spot Price $ 60.00
t=0
August Futures Price $ 59.00
July Spot Price $ 64.00
On March 1 a comm
t=1
August Futures Price $ 63.50
futures price is $59
August futures pric
A company entered
its purchase of the
on July 1. What is
Company A of hedging) paid
March Futures Contract $ 64.00
July spot
t=0
Spot price $60
August Futures Price $59
t=1
Spot Price $64
August Futures Price $63.50
Effective Price $59.50
On March 1 a commodity’s spot price is $60 and its August
futures price is $59. On July 1 the spot price is $64 and the
August futures price is $63.50.
A company entered into futures contracts on March 1 to hedge
its purchase of the commodity on July 1. It closed out its position
on July 1. What is the effective price (after taking account
of hedging) paid by the company?