Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter’s production of catalytic converters. It buys three-month futures contracts for 10,000 ounces at a price of $1,250 per ounce.
a. Suppose the spot price of platinum falls to $1,100 in three months’ time. Does Phoenix have a profit or loss on the futures contract? Has it locked in the cost of purchasing the platinum it needs?
b. How do your answers change if the spot price of platinum increases to $1,400 after three months?
Commodity
Spot Price
Futures Price
Comments
Magnoosium
$2,550 per ton
$2,728.50 per ton
Monthly storage cost = monthly convenience yield
Frozen quiche
$.50 per pound
$.514 per pound
Six months’ storage costs = $.10 per
pound; six months’ convenience yield =
$.05 per pound.
Nevada Hydro 8s of 2002
77
78.39
4% semiannual coupon payment is due
just before futures contract expires.
Costaguanan pulgas (currency)
9,300 pulgas =$1
6,900 pulgas =$1
Costaguanan interest rate is 95% per year.
Establishment Industries
$95
$97.54
Establishment pays dividends of $2 per quarter.
Next dividend is paid two months from now.
common stock
$12,500 per
$14,200 per
Six months’ convenience yield =$250 per tank.
Cheap white wine
10,000-gal. tank
Your company has surplus storage and can store
50,000 gallons at no cost.
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