Tyler buys a futures contract from Alex that gives him the right to buy 1,000 barrels of oil at $125 per barrel in 48 months. What happens in 48 months if the actual price per barrel of oil is $100? Group of answer choices Alex must give Tyler $10,000. The contract becomes void because the price turned out lower than expected. Tyler must pay Alex $25,000. Tyler makes a profit of $25 per barrel, or $25,000.

Question

Business

Ramon Love

18 September, 00:14

Tyler buys a futures contract from Alex that gives him the right to buy 1,000 barrels of oil at $125 per barrel in 48 months. What happens in 48 months if the actual price per barrel of oil is $100? Group of answer choices Alex must give Tyler $10,000. The contract becomes void because the price turned out lower than expected. Tyler must pay Alex $25,000. Tyler makes a profit of $25 per barrel, or $25,000.

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Answers (1)

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Hayden Lowe · Answer 1

Answer: Tyler must pay Alex $25,000.

Explanation:

This is a Futures contract which means that there must be a settling of losses and profits. Tyler went into a contract with Alex in which Tyler would buy oil from him at $125 a barrel in 48 months.

In 48 months however, the price is $100 per barrel. This means that Tyler would be paying $25 more for the barrel than it is worth.

Seeing as there are 1,000 barrels that comes to,

= $25 * 1,000

= $25,000

Tyler must therefore pay this $25,000 to Alex to settle the contract.