a. Each contact calls for delivery of 5,000 bushels of corn. Suppose you buy one

Question

a. Each contact calls for delivery of 5,000 bushels of corn. Suppose you buy one contract for December - 2011 delivery. If the contract closes in December at a level of 4.192, what will your profit be? (10 points)

b. How many December - 2011 maturity contracts are outstanding? (5 points)

Last Chg Open High Low Volume Open Int 521158 177561 40116 60725 15953 95330 6296 953 Month Dec 2009 371'2 Mar 2010 383'41'4 384'2 389'4 381'0 May 2010 392'41'0393'0397'2 389'6 1'6 372'4 377'6 368'653150 6464 728 1022 184 2902 Jul 2010 400'21'0 400'0 405'4 397'0 Sep 2010 405'41'4 407'0 410'6 403'0 Dec 2010 412'21'2 412'4 417'4 4100 Dec 2011 418'6-0'6 418'6 423'0 417'2 Dec 2012 4370 0'0 440'04400 436'0 25 Figure 2.10 Corn futures prices in the Chicago Board of Trade, October 15, 2009 Source: The Wall Street Journal Online, October 16, 2009

Explanation / Answer

Part A

Purchase price is 4.186 as given in the table.

Profit = (closing price – purchase price) x no. of contracts x size of the contract

           = ( 4.192 -4.186) x 1 x 5000

            = 30

Therefore, amount of profit is 30

Part B

Open interest tells about the number of contracts outstanding. For December 2011, no. of contracts outstanding is 6296.

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