Farmer Jayne decides to hedge 10,000 bushels of corn by purchasing put options with a strike price of $1.80. Six-month interest rates are 4.0% and the total premium on all puts is $1,200. If her total costs are $1.65 per bushel, what is her marginal change in profits if the spot price of corn drops from $1.80 to $1.75 by the time she sells her crop in 6 months?

Farmer Jayne decides to hedge 10,000 bushels of corn by purchasing put options with a strike price of $1.80. Six-month interest rates are 4.0% and the total premium on all puts is $1,200. If her total costs are $1.65 per bushel, what is her marginal change in profits if the spot price of corn drops from $1.80 to $1.75 by the time she sells her crop in 6 months?

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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