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.

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.

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

See similar textbooks

Similar questions

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
Suppose that March oil futures have the price of $65/barrel, and the size of the contract is 1,000 barrels. When the contract matures in March, what will be the profit of a single long futures contract if the spot price is $68.50/barrel? Only typed Answer and give Answer fast
The price of the July corn futures is $4.13, and the September corn futures are 10 cents higher. A trader thinks that the spread between July and September will contract.a. How would the trader use a spread order to bet on your view?b. Did the trader buy or sell the spread?c. How much money would you make if the price of July corn futures increases to $5.00 and the September contract drops to $4.50. Assume the spread trade was for 5000 bushels of corn.
It is 1st January and you have an existing $10m floating rate US dollar bank deposit based on 90-day LIBOR. Current interest rate is 4% pa and there is a flat yield curve. The Eurodollar futures price on 1st January is F0 = 99. The next 2 interest rate reset dates on the deposit are the 15th February and the 15th May. The contract size for Eurodollar futures is $1m. How would you hedge this position on 1st January using Eurodollar futures contracts? Explain the outcome of the hedge if (all) yields fall to 3% pa on the 10th January and then fall to 2% pa on the 10th of May. What are the risks in the hedge?
June 2019 Mexican peso futures contract has a price of $0.05197 per MXN. You believe the spot price in June will be 0.05831 per MXN a. What speculative position would you enter into to attempt to profit from your beliefs? O Short position O Long Position b. Calculate your anticipated profits, assuming you take a position in three contracts. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Anticipated profit c. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes? (A Negative value should be indicated with a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number)
Give typing answer with explanation and conclusion
Using the forward price approach to finish the following blanks. The expected closing basis was -$.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?
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? long • To hedge: The producer will sell (buy/sell) Dec corn futures at $4.33/bu. • What is the expected price? $3.97 per bushel Nov. 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 at I What is the realized price for the producer? $3.84 per bushel о Method 1: o Method 2: о The hedge resulted in a realized price of
Suppose you are concerned about your firm's jet fuel exposure that you need to acquire in November. Further, your analysis suggests the best futures contract to hedge jet fuel is unleaded gasoline. You decided to hedge for 100% of the price exposure. This is September and the spot prices of jet fuel is $1.108 and RBOB gasoline is $1.121. The RBOB gasoline December futures contact on CME is currently priced at $1.141. Assume two months have passed and you want to close your futures position in November. The spot prices of jet fuel and RBOB gasoline in November are $1.131 and $1.156. All prices are quoted per gallon. The November futures price for December RBOB gasoline is $1.183. Which of the following statements is false based on the above in formation? The gain from the futures hedge is $0.042 per gallon. The basis in November is -$0.027 The RBOB gasoline market is in contango. O The basis in October is -$0.033.
An investor enters into a long futures position to buy 5,000 bushels of wheat for 575 cents per bushel. The initial margin is $5,000 and the maintenance margin is $2,500.a. To trigger a margin call the price would have to (rise above/fall below) _______ cents per bushel.b. If the price moved 10 cents farther than the minimum move described in part a, the amount of variance margin required of the investor would be $_______.c. Starting from the original position, the investor would have to see a price movement of _____ cents (above/below) ______ 575 cents in order to withdraw $2,000 from the margin account.
9
Three months ago, you sold a put option contract on Swiss franc with a strike price of $.60/SF and an option price of $.0060 per SF. Contract size is 10,000 SF. The option expires today when the value of Swiss franc is $.625. What is your total profit or loss on your investment? A. -$310 B. -$60 C. $0 D. $60

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS