Consider the following: Time: June 15th A. Compute the price of cheese paid by t
ID: 1175368 • Letter: C
Question
Consider the following:
Time:
June 15th
A. Compute the price of cheese paid by the cheese company if the futures contract is canceled on December 15th.
B. Calculate the price paid if the delivery of the futures contract is accepted.
Time:
June 15th
The cheese company knows it will need to purchase a large amount of cheese on December 15th. The current spot price is $10.40 per pound. Decembers Futures price is $10.60 December 15th Spot price is expected to be $10.60 Assume futures price on December 15th is $10.65 ResultsExplanation / Answer
(A)
Spot price on December 15 is $10.60. If the future contract is cancelled on December 15, the cheese company will buy cheese at the spot price of $10.60 i.e. at the price prevailing in the spot market on December 15.
(B)
Future price on December 15 is $10.65. If the delivery of the future contract is accepted, then price paid for cheese will be $10.65 i.e. the price of the future contract on December 15.