Project2 - Admission/Application Essay Example

For companies trading in major stock exchanges, the performance indicators and industry statistics provide reliable data on a company. Taking into consideration the time financial year, trading volume and dividend awards allocations, Wool mart’s performance over the past three financial years are representative of an improving company. In this sense, the income statement shows an improvement in gross profits except a decline in the net income in the 2013-2014 financial year. Alternatively, the company augmented its asset base an indication of potential business improvement in assets.

Based on this observation, a futures contract is appropriate. It is worth noting that any contract with the company is more profitable using a futures contract agreement. Using a daily variation of 0.2%, the futures price of the asset delivered to the company has a significant change if the period of repayment is three years. However, this is possible given the records of the company. The earnings on the asset will be as follows. Assuming that the asset does not earn dividends, the current risk free rate of return is 1%, and the return period is three years.

The following formula applies. The asset value delivered after three years is $51,005. Comparatively, a spot price would be lower for the company. Whereas this is a low figure having invested in the asset and waiting for two years, other factors influenced the outcome of the final future price. These factors could be associated with storage costs, convenience yields and dividend yields. Additionally, supply and demand forces have significant effects on the price of a futures contract. An options contract with the two companies has notable weaknesses.

For instance, it would require asset price calculation based on company shares. This forces the investor purchasing such options