Question 4 (6 points): HedgeJanuary 20th: Miller needs to buy wheat in late April. Currently, the May wheat futures aretrading at $6.67. The expected basis is -$0.30.• Does the miller have a long or short cash position?• Does the miller have a long or short futures position?⚫ To hedge: The miller willApril 30thWhat is the expected price?.• The miller must.(buy/sell) May wheat futures at $6.67/bu.(buy/sell) wheat locally in the cash market at $7.89/bu.•To offset their future position, they must$8.04/bu.• What is the actual basis?.•What is the realized price for the producer?。 Method 1:оMethod 2:оThe hedge resulted in a realized price of(buy/sell) May futures at

Let's go through the detailed workings for each step in the hedge to better understand the…

Answered: Question 4 (6 points): Hedge January…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Question 5 (5.5 points): Hedge May 20th: Producer plans to sell corn in early November. Currently the December corn futures are trading at $4.33. The expected basis is -$0.36. • Does the producer have a long or short cash position? (buy/sell) Dec corn futures at $4.33/bu. Nov. 10th: To hedge: The producer will What is the expected price? • The producer must (buy/sell) corn locally in the cash market at • • $4.18/bu. To offset their future position, they must $4.67/bu. What is the actual basis? What is the realized price for the producer? ○ Method 1: Method 2: о The hedge resulted in a realized price of (buy/sell) Dec futures at
9-month long futures contract on an investment asset that provides $25 coupon payment in 3 months. Storage cost is $2 per unit payable at 9 mos. Spot price of asset is $275 per unit. Risk-free rate is 6.5% per annum. A. What is the no-arbitrage futures price? B. Suppose futures price is $320, how will the trader exploit the arbitrage opportunity? C. Suppose futures price is $220, how will the trader exploit the arbitrage opportunity?
Question 3 (6.5 points): Hedge October 15th: A producer plans to sell wheat in early July; currently, July wheat futures are trading at 680'6. The expected basis is $0.60 under. July 1 • Does the producer have a long or short cash position? Does the producer have a long or short futures position? To hedge: The producer will per bushel. What is the expected cash price? (buy/sell) July wheat futures at 680'6 ⚫ The producer must (buy/sell) wheat locally in the cash market at 562'2 per bushel. To offset their future position, they must. 599'4 per bushel. • What is the actual basis? • (buy/sell) July futures at 。 Was the basis stronger, weaker, or the same as expected? What is the realized price for the producer? Method 1: 。 Method 2: 。 The hedge resulted in a realized price of
3
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? A.) Tyler must pay Alex $25,000. B.) Tyler makes a profit of $25 per barrel, or $25,000. C.) The contract becomes void because the price turned out lower than expected. D.) Alex must give Tyler $10,000.
6. Futures contract are settled daily and usually closed out prior to maturity.
1. A security promises a future cash flow of exactly $4,200 in 5 years and $1,001 in 6 years. If the interest rate is 5%, then what is the present value of this security? 2.There are decreasing opportunities for businesses to make profitable investments. In the market for bonds we expect that the equilibrium price will and the equilibrium interest rate will
Assume you are a soybean producer wanting to establish a selling price range. You purchase a $10.00 put for 11 cents and sell a $11.00 call for 12 cents. The expected basis is 25 cents under Nov Soybean futures. What is your anticipated selling price range? Find the floor price and ceiling price.
Banks often close Repo-Deals with other banks. Today the lower Rhine-Bank (LRB) owns a 6% CHF-fixed coupon bond which was issued by the Swiss Novartis Group and is subject of a Repo-Deal. Three months ago the bank closed the Repo-Deal which originally had a maturity of six months. 1. Please name the risk which is hedged by Repo Deal. 2. Please name two risks which are related to the above mentioned bond. 3. Select one risk of the above mentioned bond and name one means/financial instrument in order to hedge the selected risk. 4. Briefly describe the events or actions which a. Took place three months ago, b. will take place in three months.
7
Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 3.10 percent. For all securities, the inflation risk premium is 2.10 percent and the real interest rate is 2.30 percent. The security's liquidity risk premium is .80 percent and maturity risk premium is 1.00 percent. The security has no special covenants. What is the security's equilibrium rate of return?
17. When the interest rate in an economy rises, the stock market typically reacts negatively. This is because (a) the future dividends companies provide to their investors are discounted more heav- ily. (b) the present values of the future dividends companies provide to their investors decrease. (e) investors sell their investments in the stock market and deposit the money into banks. (d) All of the above are correct. 18. Suppose that the interest rate is 8%. The sum of the present values of three payments of $500 to be received in 3 consecutive years is calculated as (a) 8500 x 1.08 x 3 (b) S00 (1.08) (1.08 1O8 (c) 8500 x 1.08 + 8500 x (1.08)2 + 8500 x (1.08)3 (d) x 3 1O8 19. When a person buys insurance, which of the following best describes the economic transaction? (a) The person donates money to the insurance company. (b) The insurance company pays the person to buy the risk, a desirable commodity, from him/her. (c) The person pays to sell the risk, an undesirable commodity, to…

SEE MORE QUESTIONS

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS