《bank,money课件》HO_MB2e_ch07.pptVIP

* Notes: In greater detail, the spot price must equal the futures price on the settlement date because if there were a difference between the two prices, arbitrage profits would be possible. In using settlement by offset, rather than actually delivering wheat, you would close your position at the CBOT by buying two futures contracts, thereby offsetting the two contracts you sold in May. You sold the contracts for $20,000 (= $2.00 per bushel × 10,000 bushels). By buying them back for $18,000 (= $1.80 per bushel × 10,000 bushels), you earn a profit of $2,000 in the futures market. In the spot market, you sell your wheat for $18,000, thereby receiving $2,000 less than you would have received at the May spot price. Because this $2,000 loss is offset by your $2,000 profit in the futures market, you have succeeded in hedging the risk of a price decline in the wheat market. * * * * * * * Teaching Tips: Completing Solved Problem 7.3 will enhance students’ understanding of futures. In addition, how to hedge against possible changes in interest rates is an issue that students may face in the future, either personally when planning to buy a house or in their careers when considering how to finance capital purchases. * * * * * * * Notes: When the price of Apple stock is between zero and $610, the owner of the option will not exercise it and will suffer a loss equal to the $10 price of the option. As the price of Apple rises above $610 per share, the owner of the option will earn a positive amount from exercising it. For prices above $620, the owner earns a profit. * Notes: The owner of a put option earns a maximum profit when the price of Apple is zero. As the price of Apple stock rises, the payoff from owning the put option falls. At a price of $580, the owner of the put would just break even. For prices above the $590 strike price, the owner of the put option would not exercise it and would suffer a loss equal to the option price of $10. * * Notice that because a buye