Question29 (b) What is the gain or loss for Myles on this futures contract after the first trading day? [1 mark] -500[input] Your response must be entered as a positive (profit)/negative (loss) numerical value with 2 decimal places and excluding the dollar sign ($) and any commas (,). Maximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

Question restatement: The prompt asks for the gain or loss for Myles on this futures contract after the first trading day, and requires the response to be a negative (loss) or positive (profit) number with 2 decimal places, excluding dollar signs and commas.

Step 1: Understand the required format. Since this is a short answer question with a single numerical result, the student must calculate the day's profit or loss and present it as a numeric value with two decimals. In this case, the provided answer is -500.00, indicating a loss of 500.00 units of currency on the first day.

Step 2: Conceptual basis for futures P/L on day 1. The daily gain or loss on a futures contract is typically calculated as: (Change in the futures price) × (contract multiplier). If the price moves against the holder, the result is negative (loss); if it moves in favor, positive (profit). The exact magnitude depends on the price change and the contract multiplier.

Step 3: Interpreting the given answer. The value -500.00 implies that the price moved unfavorably by an amount whose product with the contract multiplier equals 500.00. For example, if the price changed by -2.5 points and the contract multiplier were 200, the loss would be (-2.5) × 200 = -500. Alternatively, a -5.0 point move with a 100 multiplier would also yield -500. The key is the sign indicates loss, and the magnitude matches 500 in currency units with two decimals.

Step 4: Why this could be correct in typical contexts. On day 1, daily settlement marks the position to market. If Myles held a long position and prices fell, a loss occurs; conversely, a short position would gain from a price drop. Since the answer is negative, it represents a loss for the position Myles holds.

Step 5: Why this could be incorrect in other contexts. Without the actual contract details (initial price, current price, and multiplier), we cannot independently verify the exact P/L. Different contracts have different multipliers and tick sizes, so the same price move could yield different losses or gains. If a hypothetical multiplier or price change differs from what produced -500.00, the result would be a different number.

Step 6: Formatting note. The required response format is a numeric value with two decimals and no currency symbol or comma. The provided answer -500.00 adheres to this formatting requirement.

Summary of reasoning for the given answer: The negative sign communicates a loss, the magnitude 500.00 reflects the daily P/L produced by the day-1 price movement times the contract multiplier, and the two-decimal format aligns with the specified answer conventions.

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