One orange juice future contract is on 15,000poundsof frozen concentrate. Suppose that in September 2016a company sells a March 2018orange juice futures contract for 120 cents per pound. In December 2016,the futures price is 140 cents. In December 2017,the futures price is 110 cents. In February 2018,the futures price is 125 cents. The company hasa December year end. What is the company's profit or loss on the contract

The company's loss on the contract is $750.

Explanation:

a) Data and Calculations:

Future Contract of 15,000 pounds frozen concentrate:

March 2018 orange juice futures price = 120 cents per pounds

December 2016, the futures price = 140 cents

December 2017, the futures price = 110 cents

February 2018, the futures price = 125 cents

Loss on futures contract = (125 - 120) * 15,000 = $750

b) This futures contract for frozen concentrate is a contract between two parties where both parties agree to sell and buy 15,000 pounds of frozen concentrate at a predetermined price of 120 cents per pound in March 2018, although the contract was entered into in September 2016.

The correct answer is (B)

Explanation:

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