HedgeMay 20th: Producer plans to sell corn in early November. Currently the December cornfutures are trading at $4.33. The expected basis is -$0.36.•Does the producer have a long or short cash position? long•To hedge: The producer will sell(buy/sell) Dec corn futures at $4.33/bu.•What is the expected price? $3.97 per bushelNov. 10th:•The producer must sell(buy/sell) corn locally in the cash market at•.$4.18/bu.To offset their future position, they must buy$4.67/bu.What is the actual basis? -se.49 per bushel·(buy/sell) Dec futures atIWhat is the realized price for the producer?$3.84 per bushelоMethod 1:o Method 2:оThe hedge resulted in a realized price of

Step 1:May 20th:The producer plans to sell corn in early November, indicating they have a long cash…

Answered: Hedge May 20th: Producer plans to sell…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A farm that produces corn is looking to hedge their exposure to price fluctuations in the future. It is now May 15th and they expect their crop to be ready for harvest September 30th. You have gathered the following information: Bushels of corn they expect to produce 44,000 May 15th price per bushel $3.08 Sept 30 futures contract per bushel $3.22 Actual market price Sept 30 $3.37 Required (round to the nearest dollar): Calculate the gain or loss on the futures contract and net proceeds on the sale of the corn. Net gain or loss on future $Answer Sell the corn $Answer Net $Answer
please help with this question 10. A soybean farmer plans to sell a portion of their crop in October. To set up a short hedge, the farmer purchases a put option with a strike price of 750/bu. at a premium of 30/bushel. In October, the soybean cash price is 640/bu. and November soybean futures are trading at 655/bu. Fill in the table given here to describe the actions this farmer will take in the cash & futures exchange to hedge, the gain/loss the manufacturer will experience in these markets, and the net price that the manufacturer will receive for soybeans. Futures & Options Markets Purchase a put option Time Period Spot Market June No action Strike Price = 750/bu. Premium 30/bu. October Gain/Loss Net Price
A com processor will purchase 3 million bu. of corn in one month and hedges against price changes using the November contract. You know from historical data (tailing the hedge data) o,-0.0333, o,-0.0200, and p0.935. If needed, the futures price is $ 9.76 per bushel and the spot price is $ 9.4. How many contracts should be hedged?
Production Hedge: A cattle producer wanted to purchase the soybean from the market. On February 1, he expected the basis on October 10 equaled -$.40. Assume there is NO basis risk. Cash Futures 1-Feb Estimated Purchased Costs $6.00 Buy Oct Futures @ $6.25 10-Oct Buy Cash ???? Sell May Futures @ $6.50 • What is the realized price (or net purchase price)?
Suppose you sell six September 2020 palladium futures contracts this day at the last price of the day. Use Table 23.1. a. What will your profit or loss be if palladium prices turn out to be $2,034.50 per ounce at expiration? (Do not round intermediate calculations and enter your answer as a positive value rounded to 2 decimal places, e.g., 32.16.) b. What will your profit or loss be if palladium prices are $1,977.50 per ounce at expiration? (Do not round intermediate calculations and enter your answer as a positive value rounded to the nearest whole number, e.g., 32.) a. Loss b. Profit Answer is not complete. 6,200
A grain farmer has 200,000 bushels of corn in storage as of November 1st. For various reasons this grain farmer does not wish to sell until next spring. This farmer is also concerned about the price of grain dropping between now and next spring. The basis next spring is estimated to be $.40 under. On November 1st May futures are $4.25. 1. What is the estimated price if this person hedges? 2. If this person hedges would they buy or sell contracts? 3. How many contracts would be needed to hedge the entire crop? Assume on November 1st this farmer hedges the entire crop using May futures. Next spring the CBOT contracts are offset at $4.05 and the actual corn is sold for $3.65 per bushel at the local elevator. 4 What was the actual outcome? s. What would the outcome have been without the hedge?
A farmer agreed to sell corn in 6 months from now, at the spit price (S2) of that day. To reduce his price risk, he took a short position in the futures market for F1 = £10. What is the effective price he received if 6 months from now, F2 = £8 and S2 = £7
Suppose you sell seven March 2021 silver futures contracts on December 4, 2020, at the last price of the day. Use Table 25.2. a. What will your profit or loss be if silver prices turn out to be $25.01 per ounce at expiration? (Enter your answer as a positive value. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What will your profit or loss be if silver prices are $23.13 per ounce at expiration? (Enter your answer as a positive value. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a. b.
Given the following information, what would you expect to be the minimum price at which a 3 month futures contract for 100 bushels of wheat would be trading? The spot price of wheat is $8 per bushel. Storage and insurance costs for wheat are $.50 per 100 bushels, per month, payable at the end of the storage period. • You can borrow money at 8% per year. a) $865.50 b) $814.50 c) $816.50 d) $817.5
3,On September 26, the spot price of wheat was $3.5225 per bushel and the price of a December wheat futures was $3.64 per bushel. The interest forgone on money tied up in a bushel until expiration is 0.03, and the cost of storing the wheat is 0.0875 per bushel. The risk premium is 0.035 per bushel. a. What is the expected price of wheat on the spot market in December? b. Show how the futures price is related to the spot price. c. Show how the expected spot price at expiration, your answer in part a, is related to the futures price today. d. Show how the expected futures price at expiration is related to the futures price today. e. Explain who earns the risk premium and why.
A farmer sells futures contracts at a price of $3.65 per bushel. The spot price of corn is $3.15 at contract expiration. The farmer harvested 21,000 bushels of corn and sold futures contracts on 20,000 bushels of corn. Ignoring the transaction costs, how much did the farmer improve his cash flow by hedging sales with the futures contracts? Group of answer choices 9,500 10,500 8,900 10,000 9,000
Assume that the price of December 2021 corn futures is $4.65/bushel in February and $4.50 in October. If spot cash price in October is $4.55, what is the farmer's total revenue? Assume he entered into 20 contracts. Each corn contract is 5000 bushels.

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