I got a different answer. Same numerical value but different sign. Please post your answers. The question is very badly worded and it misses some of the points. Also, there are some gramatical mistakes, don’t know how Allen Resources posts such badly worded questions on the web. -------------------------------------- Vignette: VMC, a copper producer in Australia has a built new a copper refinery that will have 10million pounds of copper ready for delivery in Jan 04. Copper is traded in the world market in USD. VMC has taken on substantial debt to construct the new refinery and would like to eliminate the risk of declining copper prices in AUD. On 01/31/03, VMC’s CFO, John Creane has the following information available to him: Jan 03 copper contract: USD 0.77/pound. Jan 03 AUD contact: USD 0.61/AUD. Jan 04 copper contract: USD 0.75/ pound. Jan 04 AUD contract: USD 0.60/AUD. Trading unit of Copper futures: 25,000 pounds. Trading unit of AUD futures: AUD 100,000. One year U.S. T-bill yield: 5%. Marginal cost of storage of copper is estimated at 0.0125/pound. Question: After one year the Jan 04 copper contract is trading at USD 0.78/pound and Jan 04 AUD contract is trading at USD 0.63/AUD. What is the VMC’s opportunity cost or profit from entering the contract? a) Opportunity cost of AUD 119,048. b) Opportunity cost of AUD 414,000. c) Profit of AUD 119,048. d) Profit of AUD 414,000.
Ok, got it. I beleive thats a silent command for not posting Allen Resources question :-). However, the intention has always been to make everyone on thie forum aware of various kinds of questions (from various sources), so that we are prepared for any question on the D day.
That is horrific.
I second that… It’s pretty late otta here and solving a question like this would be a 1-O-1 knockout round.