Suppose you have $8,000 to invest and you follow the strategy you devised in question 16 to leverage your exposure to the copper market. Copper is selling at $3 a pound and the margin requirement for a futures contract for 25,000 pounds of copper is $8,000.
a. Calculate your return if copper prices rise to $3.10 a pound.
b. How does this compare with the return you would have made if you have simply purchased $8000 worth of copper and sold it a year later?
c. Compare the risk involved in each of these strategies.