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 ???? • What is the realized price (or net purchase price)? Sell May Futures @ $6.50

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 ???? • What is the realized price (or net purchase price)? Sell May Futures @ $6.50

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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N2 a lemon farmer hedges the spot price of lemons in 2 months time by shorting a 2 month orange juice futures on the CME. What risk remain? A. liquidity risk, B. Basis Risk, C. Credit Risk, D. Spread Risk
Using the forward price approach to finish the following blanks. The expected closing basis was -$.15. And the actual closing basis was -$0.25. Date 1-Oct Cash Cash Price $6.30 Futures May Futures $6.75 Cost of holding from Oct 1 to May 1 (including interest) = $0.21 What is the forward price? What is the break-even price? What is the expected profit margin? = 1-Oct 1-May Sell Cash @ $6.40 Sell May Futures @ $6.75 Buy May Futures @ ? What is the futures price on May 1? What is the gain or loss on futures market result? = What is the gain or loss on cash market result? = What is the realized price (or net selling price)? = What is the overall profit? = What is the break-even price?
Using the opening and closing basis approach to finish the following blanks. Date Cash Futures 1-Oct Cash Price $6.30 May Futures $6.75 Cost of holding from Oct 1 to May 1 = $0.21 Expected Closing Basis = -$0.15 What is the expected profit margin? = 1-Oct 1-May Sell Cash @ $6.40 Sell May Futures @ Buy May Futures @ $6.45. $6.75 What is the opening basis? What is the actual closing basis? What is the gain or loss on futures market result? = What is the gain or loss on cash market result? = What is the realized price (or net selling price)? = What is the overall profit? = What is the realized price?
Basic Option Strategies Profit Computation Assume the below prices for calls and puts: Call Put Strike Jul Aug Oct Jul Aug Oct 165 2.7 5.25 8.1 2.4 4.75 6.75 170 0.8 3.25 6 5.75 7.5 1. Buy one August 170 call contract. Hold it until expiration. lIdentify the breakeven stock price at expiration. What is the profit/loss if ST=190? What is the maximum profit? 2. Buy one October 165 put contract. Hold it until the options expire. Identify the breakeven stock price at expiration. What is the Maximum possible loss from the transaction? What is the profit/loss if ST=185
suppose you buy an non-dividend paying asset at $50 and sell a 6 month futures contract at $53. What is your profit or lost at expiration if the asset price down to $47? current 6 month interest is 0.25% p.a. (Ignore carrying costs and transaction cost)? What happens to the basis through the contract's life? a.none of the above b.it initially decreases, then increases c.it initially increases, then decreases d.it moves toward zero at expiry e.it remains relatively steady
4. Suppose that we can describe the world using two states and that two assets are available, asset K and asset L. We assume the assets' future prices have the following distributions:
Finance Initial Futures Contract price = 0.1529$ per Ib Contract size = 60000 lbs Initial Margin requirement = 10 % Maintenance margin = 600$ Assume the volatility of Soybean Oil immediately increases 20%. How will it impact Futures price? How will it impact investor's margin account requirement? Explain your answer.
Basic Option Strategies Profit Computation Assume the below prices for calls and puts: Call Put Strike Jul Aug Oct Jul Aug Oct 165 2.7 5.25 8.1 2.4 4.75 6.75 170 0.8 3.25 6 5.75 7.5 9 Buy one August 170 call contract. Hold it until expiration. Identify the breakeven stock price at expiration. What is the profit/loss if ST=190? What is the maximum profit? Buy one October 165 put contract. Hold it until the options expire. Identify the breakeven stock price at expiration. What is the Maximum possible loss from the transaction? What is the profit/loss if ST=185
D3) The cash position of a merchant is 10000 bushels of wheat , the variance of the changes of forward price is 0.00094, the variance of the changes of the base is 0.000453, the variance of the cash price changes is 0.000805 and the covariance of the changes of forward price with the changes of the cash prices is 0.000518. Calculate the efficiency of the hedge and choose one of the following answers. a. 0.97 b. 0.31 c. 0.69 d. 0.03
This is part a) question and it's answer in order to answer part b) question Question: You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today? answer : According to the question we need to calculate the current price of the perpetual consol. Perpetual consoles are priced differently because their expected income is spread through an indefinite period. So, perpetual consoles are priced using the current yield. The current yield is calculated as:- coupon amountMarket price×100coupon amountMarket price×100 After calculating the current yield price is calculated by the above formula where, i = Current interest rate y = yield so, the price of this consol will be Price = i/y I please need the solutions for part b) question b) In the next period however, the interest rate changes unexpectedly to i . What is the new price of the bond? If…
E2 A cheese factory wants to protect their purchase price of milk so they hedge in milk futures at a price of $19.10. Expected basis is +$0.90. On the day they exit the futures market, the futures price is $18.90 and actual basis is +$0.50. Find the net price they will pay for milk.
D4) Finance The cash position of a merchant is 10000 bushels of wheat , the variance of the changes of forward price is 0.00094, the variance of the changes of the base is 0.000453, the variance of the cash price changes is 0.000805 and the covariance of the changes of forward price with the changes of the cash prices is 0.000518. Calculate the efficiency of the hedge and choose one of the following answers. a. 0.97 b. 0.31 c. 0.69 d. 0.03

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