You are the buyer for a cereal company and you must buy 80,000 bushels of corn next month. The futures contracts on corn are based on 5,000 bushels and are currently quoted at 415′0 cents per bushel for delivery next month. If you want to hedge your cost, you should _____ contracts at a cost of _____ per contract.
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You are the buyer for a cereal company and you must buy 80,000 bushels of corn next month. The futures contracts on corn are based on 5,000 bushels and are currently quoted at 415′0 cents per bushel for delivery next month. If you want to hedge your cost, you should _____ contracts at a cost of _____ per contract.
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- 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) $817.5A 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 $AnswerAssume 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.
- A broker wants to sell a customer an investment costing $100 with an expected payoff in one year of $106. The customer indicates that a 6 percent return is not very attractive. The broker responds by suggesting the customer borrow $90 for one year at 4 percent interest to help pay for the investment a. What is the customer's expected return if she borrows the money? Customer's expected return %A trader enters into a short cotton forward contract when the forwards price is 50 cents per pound. The contract is for the delivery of 50000 pounds. How much does the trader gain or lose if the cotton price at the end of the contract is? 20 cents per pound 30 cents per pound In what price forward will be at the money, in the money, and out-the money?The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay $10,000 annually forever with the first payment in exactly one year. Considering that Doesn’t Pay has a low rating from Fitch, you would require a 15% return. What is the most that you would be willing to pay for the contract?
- A broker wants to sell a customer an investment costing $100 with an expected payoff in one year of $108.6. The customer indicates that a 8.6 percent return is not very attractive. The broker responds by suggesting the customer borrow $80 for one year at 6.6 percent interest to help pay for the investment. a. What is the customer's expected return if she borrows the money? (Round your answer to 1 decimal place.) Customer's expected return %The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay$10,000 annually forever with the first payment in exactly one year. Considering thatDoesn’t Pay has a low rating from Fitch, you would require a 15% return. What is themost that you would be willing to pay for the contract? The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay$10,000 annually forever with the first payment in exactly five years. Considering thatDoesn’t Pay has a low rating from Fitch, you would require a 15% return. What is themost that you would be willing to pay for the contract?The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay $10,000 annually forever with the first payment in exactly five years. Considering that Doesn’t Pay has a low rating from Fitch, you would require a 15% return. What is the most that you would be willing to pay for the contract?
- An investor buys 5 future contracts on gold at the MCX.Each contract is for 100 gms. The contract price is Rs 30550 per10 gms. The tick size is Re 1. The initial margin is 4% while minimum margin is 90% of the initial margin. a. What is the minimum change in the value of the contract? b. What is the initial margin? C. At what price level the investor will have a margin call?Consider a producer who is in the business of producing Cocoa for future sale. At the time of 0 (i.e., present time), we have S(O) = $1652, F(0) = $1675. The firm is expecting to sell the Cocoa in 2 months, while the delivery date of the futures contract is 3 months away. Assume that the price of Cocoa in two months is unpredictable, but we know that the future price in two months will be $8 higher than the spot price of Cocoa in two months (i.e., F(t) = S(t) + $8). Question 18. Without hedging, what is the firm's net profit at date t (i.e., in two months)? A) $23 B) $8 C) $31 D) $15Example • A farmer sells two soybean futures contracts at a price of $8.91 per bushel. The spot price of soybean is $9.05 per bushel at contract expiration. The farmer harvested 14,000 bushels. • (1)What are the farmer's proceeds from the sale of oats if the farmer sell 10,000 bushels with the futures contracts and sell the rest in the spot market? • (2)What are the farmer's proceeds if the farmer sells all the 14,000 bushels of oats in the spot market?