Andrea bought futures contracts on 560,000 pounds of domestic sugar at a price of 21.48 cents per pound. Futures contracts on sugar are for 112,000 pounds. What is the amount of Andrea's proﬁt or
Loss if the price at contract expiration is 21.32?

Question

Quizplus · Accepted Answer

First, we need to calculate the total cost of Andrea's futures contracts:
Number of contracts = 560,000 pounds / 112,000 pounds per contract = 5 contracts
Total cost = 5 contracts x 112,000 pounds per contract x $0.2148 per pound = $120,192

If the price at contract expiration is 21.32 cents per pound, then the value of the futures contracts would be:
New total value = 5 contracts x 112,000 pounds per contract x $0.2132 per pound = $119,364.80

Andrea's profit or loss would be the difference between the total cost and the new total value:
Profit/Loss = $120,192 - $119,364.80 = -$827.20

Therefore, Andrea's loss is $827.20, which is closest to option B of -$896.00.

Andrea Bought Futures Contracts on 560,000 Pounds of Domestic Sugar