10. A soybean farmer plans to sell a portion of their crop in October. To set up a short hedge, 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

10. A soybean farmer plans to sell a portion of their crop in October. To set up a short hedge, 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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter21: Risk Management

Section: Chapter Questions

Problem 4P

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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
as a soybean buyer, you are concerned about soy prices. Currently, they are at $60 per bushel .Therefore, you enter into the appropriate futures contract at the current spot price. What is your profit or loss, if six months later, soybean is selling at the spot market for 51 bushell? why?
The answers should be found on the following website; cmegroup . Find the recent quotes for soybean futures. What is the longest maturity for this contract? Is there more trading in the nearer or more distant contracts? Does it cost more to buy soybeans for delivery in the next few months or for later delivery? ( give deeply step wise explaination with type the answer.)
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.
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?
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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
Consider a farmer who plans to sell 6,000 bushels of corns on date T. The date-T spot price of corn is normally distributed with mean $500 per bushel and standard deviation $50 per bushel. To hedge the price risk, the farmer considers shorting corn futures with delivery on date T. The futures price is $480 per bushel, and one contract is to deliver 5,000 bushels. In addition, the farmer can take only integer number of contracts (i.e, a fraction of contract such as 0.1 is NOT allowed). (a) How may contracts does the farmer need to take? (b) What is the mean of the total revenue? (c) What is the standard deviation of the total revenue?
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