Question

You buy a NYMEX WTI Crude Oil Futures 1,000 barrel contract at a price of $50 per barrel. You decide to buy on margin where the margin requirement is 20%. In November, the price of oil rises to $55 per barrel based on expectations that OPEC will reduce oil supplies. What will be your percentage profit or loss on the contract

Answer 1

50% profit

Step-by-step explanation:

Calculation for What will be your percentage profit or loss on the contract

Buying price = $50

Margin = 20%

November expected price = $55

First step is to calculate the Margin on the oil

Using this formula

Margin on the oil =Buying price*Margin

Let plug in the formula

Margin on the oil = $50 * 20%

Margin on the oil = $10

Second step is to calculate the Profit per barrel

Using this formula

Profit per barrel=November expected price -Buying price

Let plug in the formula

Profit per barrel = $55 - $50

Profit per barrel= $5

Last step is to calculate profit on the contract using this formula

Profit on the contract=Profit per barrel/Margin on the oil *100

Let plug in the formula

Profit on the contract= $5/$10 * 100

Profit on the contract= 50% profit

Therefore What will be your percentage profit on the contract is 50%