Gold price today is $1,445; the futures price that expires in 6 months (June 2020) is $1,460
Question:
Gold price today is $1,445; the futures price that expires in 6 months (June 2020) is $1,460 per ounce. You believe the price of gold will go up over the next 6 months. So you will buy one futures contract that expires in June 2020. There are 100 ounces of gold in each futures contracts and margin requirement for gold future is $3500 per contract.
What’s your future’s initial position value when you buy this future contract?
If 6 months later, the price of gold goes up to $1470, what’s the future’s new position value?
What’s your return on investment (ROI) from the trade?
What’s the basis of the June 2020 futures?
If the risk free rate is 3%, what’s the gold futures price for June 2020 according to the Spot Future Parity?
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling