Question23 Mohamad shorted futures contracts on a US stock at $61.50 per share. Each contract is for the sale of 200 shares. The stock price at the end of the contract is $57. Mohamad has to pay a flat fee of $8000 as well as a trading commission of $7 per contract. If he has shorted 100 contracts, what is the net profit/loss to him? [4 marks] [input] Your response must be entered as a positive (profit)/negative (loss) numerical value with 0 decimal places and excluding the dollar sign ($) and any commas (,). Maximum marks: 4 Flag question undefined

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BlackTom AI · Accepted Answer

First, set up the payoff for a short futures position. When Mohamad shorted at 61.50 and the price at expiration is 57, the price moved in a favorable direction by 61.50 − 57 = 4.50 per share.

Next, compute the total number of shares involved. Each contract covers 200 shares and there are 100 contracts, so total shares = 200 × 100 = 20,000 shares.

Profit from the price move is 4.50 per share times 20,000 shares, which equals 4.50 × 20,000 = 90,000.

Now account for costs. There is a flat fee of 8,000 plus a trading commission of 7 per contract. With 100 contracts, the commission is 7 × 100 = 700. Total fees = 8,000 + 700 = 8,700.

Finally, net profit/loss is the gross profit minus fees: 90,000 − 8,700 = 81,300.

So the net result from this position is a positive cash flow of 81,300. The calculation hinges on the short-profit per share, the total contract size, and the fixed plus per-contract fees; each piece must be correctly combined to avoid miscounting either the contract quantity or the cost components.

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