Reference no: EM132794288
In is February. The operation manager of a new mining company reviews its platinum production plans. The production forecasts suggest that the company will have 20,000 ounces of newly mined and refined platinum available for sale the following June. The manager considers the current price of the July platinum futures contract at $1,132.80 per ounce favourable, given the company's total production costs, including interest and depreciation, of $980 an ounce. As a result, on January 28, the mining financial manager decides to lock in a profit by hedging his anticipated production using the July platinum futures contract at $1,132.80 per ounce. On January 28, the spot price is $1,121.31 per ounce. The contract size is 50 troy ounces on the CME Group.
(b) Indicate whether the financial manager should use a long or short forward contract to hedge the risk exposure. How many contracts are needed for a full hedge?
(c) On January 28, the company trades July futures contracts at $1,132.80 per ounce. The initial margin deposit for CME Group is $8,100 per contract and the maintenance margin is $6,000. The next day, the July platinum futures price closes at $1136.80 per ounce. What is the balance in the margin account? Would the company get a margin call? Why? What if the July platinum futures price closes at $1127.50 per ounce?
(d) What price change would lead to a margin call from the initial futures price of $809.80 per ounce (up or down)?
(e) On June 15, the company sells platinum at $1210.25 per ounce locally and it offsets the futures positions. Suppose that on June 15, the futures price is trading at $1125.50 per ounce. What is the company's net (effective) selling price per ounce for platinum?
(f) What would be the company's net selling price per ounce for platinum if the financial manager hedged only 75% of the forecasted production? What is the total gain/loss from the futures position(s)? Any regrets from hedging? Why?
|
What are the gift tax consequences
: Anthony loans his daughter Belinda $2,000,000. What are the gift tax consequences? Does it matter how Belinda uses the $2,000,000
|
|
Journalize transactions and closing entries for net income
: Journalize the transactions and the closing entries for net income and dividends. Then, enter the beginning balances, and post the entries to the stockholders
|
|
What caused the great depression
: What caused the Great Depression? How did President Franklin Roosevelt's use the New Deal to grow the role of the Federal Government's role in American society?
|
|
What is the capital gain yield on the? bonds
: The face value of the bonds is $1,000. The price of the bonds is $1,122.79 to yield 4.51%. What is the capital gain yield on the? bonds?
|
|
What is the company net selling price per ounce
: In is February. The operation manager of a new mining company reviews its platinum production plans. The production forecasts suggest that the company
|
|
What will be the amount of bad debts expense reported
: The company's management estimates that uncollectable accounts will be $15,000. What will be the amount of bad debts expense reported
|
|
How did the rising conservatism affect economic issues
: How did the rising conservatism of the 1970s affect the social, political, and economic issues in the U.S.? The presentation must be 9-12 slides in length.
|
|
Record the journal entry at the time of payment
: Record the journal entry on September 1, 20x1. Record the journal entry at the time of payment (assume the note is paid in full on the appropriate date).
|
|
What is the correct price for the coupon bond
: The Federal Government 2-year coupon bond has a face value of? $1,000 and pays annual coupons of? $33. The next coupon is due in one year.
|