The table below shows the last 5 days of a futures contract on corn. Suppose we take
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Question:
The table below shows the last 5 days of a futures contract on corn. Suppose we take a long position in the futures contract on day 0. Delivery is on day 5: on this day the long futures contract holder pays the settlement price on that day, and receives physical delivery of corn. The settlement prices of the contract on each day are shown in the second column.
i) Fill out the cash flows on each day in the third column. These are the mark-to-market payments.
ii) Assuming that interest rates vanish, explain how the result obtained agrees with the statement that "futures and forward prices are equal if in- terest rates are deterministic".
Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
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