What is your expected return at maturity on futures contract

Assignment Help Financial Management

Reference no: EM132064017

To capitalize on your expectation of a 10% gold price appreciation, you consider buying futures or option contracts to speculate. The spot price of gold is $400. Near-delivery futures contracts are quoted at $410 per ounce with a margin of $1,000 per contract of 100 ounces. Call options on gold are quoted with the same delivery date. A call with an exercise price of $400 costs $20 per ounce. The rate of return on your speculation will be the return on your invested capital, which is the initial margin for futures and the option premium for options.

a. Based on your expectation of a 10% rise in gold price, what is your expected return at maturity on futures contracts?

b. Based on your expectation of a 10% rise in gold price, what is your expected return at maturity on option contracts? c. Simulate the return of the two investments for various movements in the price of gold.

Reference no: EM132064017

Questions Cloud

Use forward rather than futures currency contracts : Give some reasons why the German corporation should use forward rather than futures currency contracts.

What would be the return and risk of portfolio invested : What would be the return and risk of a portfolio invested half in the U.S. market and half in the European index?

You buy or sell to hedge the british stock market risk : How many contracts should you buy or sell to hedge the British stock market risk?

Financial analyst collected some data about company : A financial analyst collected some data about a company, which has two sources of financing: debt (25%) and equity (the rest).

What is your expected return at maturity on futures contract : Based on your expectation of a 10% rise in gold price, what is your expected return at maturity on futures contracts?

Spot value of the index lower than futures value of index : Why is the spot value of the index lower than the futures value of the index?

What would be the volatility of portfolio invested : What would be the volatility of a portfolio invested 95% in the World index and 5% in this emerging market?

What is sigma of japanese market when expressed in dollars : What is the sigma of the Japanese market when expressed in dollars?

Compute after-tax cash flows resulting from operating income : Compute the after-tax cash flows resulting from the operating income for each of the first five years.

User Account

All Pages