ESSENTIALS OF INVESTMENTS - CONNECT ACCE
ESSENTIALS OF INVESTMENTS - CONNECT ACCE
11th Edition
ISBN: 9781266077951
Author: Bodie
Publisher: INTER MCG
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Chapter 17, Problem 1PS
Summary Introduction

To calculate:

The profit ascertained by the investor in the futures contract having maturity in the month of February

Introduction:

Profit refers to the act of sale of a stock or security so as to ascertain gain after the stock price has moved up from the price at which it was actually acquired by the investor. Profit taking action can impact the broad market, specific sector and even an individual stock.

Expert Solution & Answer
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Explanation of Solution

In this situation, a future contract with February maturity is being sold on January 01 at a future price amounting to $2,400. If the price of the future at the time of maturity stands to be $2,450. The contract multiplier stands to be $50. Therefore computation of the profit is shown below:

  Profit=Future price+Future contract price×Contract multiplier=2450+2400×$50=2500

Conclusion

Hence, it can be concluded that the profit accounts for $2,500

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