Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in

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Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter’s production of catalytic converters. It buys 3-month futures contracts for 10,000 ounces at a price of $900 per ounce.

a. Suppose the spot price of platinum falls to $800 in 3 months’ time. Does Phoenix have a profit or loss on the futures contract?

b. Has it locked in the cost of purchasing the platinum it needs?

c. How does your answer to part (a) change if the spot price of platinum increases to $1,000 after 3 months?

d. How does your answer to part (b) change?

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Fundamentals of Corporate Finance

ISBN: 978-1260566093

10th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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Question Posted: Oct 25, 2019 07:38 AM

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Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in

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a If the spot price falls to 800 per ounce in three months time Phoenix Motors has a loss on ...View the full answer

Fundamentals of Corporate Finance

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