Final answer:
The question asks for payoff calculations for gold futures contracts and the current value of a gold position. Payoff is positive or negative depending on whether market price at expiry is above or below the delivery price. However, the formula provided seems irrelevant to the question.
Step-by-step explanation:
The student's question pertains to calculating the payoff of gold futures contracts and the current value of a gold position given different market prices.
Payoff Calculation
If the gold price at expiry is $1000, the payoff for being long on 2 contracts is negative, as the market price is below the delivery price (K). The loss per contract will be K - ST = $1300 - $1000 = $300. Therefore, the total loss is 2 contracts x $300 = $600.
If the gold price at expiry is $1400, the payoff is positive. The profit per contract is ST - K = $1400 - $1300 = $100. The total profit is 2 contracts x $100 = $200.
Current Value of Gold Position
The formula given in the question does not appear to be directly relevant to the calculations required for the current value of the gold position. However, generally, if the current gold price is $1400, and assuming the futures price closely tracks the spot price, then the value of each futures contract would be $1400 x the number of ounces per contract. The total position value would be the sum of these values for all contracts held.