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University of Miami Calculating Futures Contract Profit or Loss Questions

Prior to beginning work on this assignment, review chapters 4, 5 and 6 in the textbook Sundaram, R. K., & Das, S. R. (2016). Derivatives: Principles and practice (2nd ed.), and watch the videos

I need some assistance answering 5 short answer questions with all of the provided questions in a Word document, being sure to explain the answers at very detailed length and show your work if required. The assignment should have at least 5 references including the textbook at least one video as a mandatory reference and the other three references may be videos as well as other academic journals or scholarly articles. The assignment should also have an originality score of 20% or less.

1. Suppose that oil is currently trading at $38 a barrel. Assume that the interest rate is 3% for all maturities and that oil has a convenience yield of c. If there are no other carry costs, for what values of c can the oil market be in backwardation?

2. A firm is given the following information on forward prices (gold and silver prices are per oz, copper prices are per lb):

Commodity: Spot / One-month / Two-month / Three-month / Six-month

Gold: 436.4 / 437.3 / 438.8 / 440.0 / 444.5

Silver: 7.096 / 7.125 / 7.077 / 7.160 / 7.220

Copper: 1.610 / 1.600 / 1.587 / 1.565 / 1.492

(a) Which of these markets are normal? inverted? Neither and why for each.

(b) Which are in backwardation? in contango? And why

(c) Which market appears prima facie to have the greatest convenience yield? And why

3. A firm is planning to enter into a long forward hedge to offset a short forward position. If the firm chooses a futures contract over a forward contract, do they want the correlation of the spot to futures to be higher or lower than that of the spot to forwards? And why.

4. A firm enters into a long eurodollar futures contract at a price of 94.59 and exit the contract a week later at a price of 94.23. What is the firm’s dollar gain or loss on this position? Explain answer


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