Profit or Loss Calculation in a Futures Contract

Medium Derivative Pricing And Valuation Futures Contracts

A trader is analyzing a long futures position in crude oil that expires in six months. The current spot price of crude oil is $70 per barrel and the risk-free rate is 2% per annum. The futures price is quoted at $72 per barrel. If the trader is looking to evaluate the value of her position at expiration, what will the profit or loss be if the spot price at expiration is $75 per barrel?

The trader will incur a profit of $3 per barrel.

The trader will incur a loss of $2 per barrel.

The trader will break even.

Hint

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