Question

Hillary considers herself a shrewd commodities investor. She bought a May cotton contract​ (50,000 pounds) at a​ pound, and later sold it at a pound. What were her profit and her return on invested capital if her initial margin was and the size of a cotton futures contract is​ 50,000 pounds of​ cotton?

Answer 1

Answer: See explanation

Step-by-step explanation:

Based on the information given in the question, the profit will be calculated as:

Profit = (Selling price - Buying Price) × Size

= ($0.6485 - $0.6264)*50,000

= $0.0221 × 5000

= $1,105

Then, the return on the invested capital will be:

= Profit/Initial Margin

= 1105/1060

= 1.0425

= 104.25%