On March 1 a commodity's spot price is $400 and its June futures price is $416. On May 1 the spot price is $440 and the June futures price is $448. A company entered into futures contracts on March 1 to hedge its purchase of the commodity on May 1. The effective price that the company pays for the commodity after taking the hedge into account is: O a. $400.00 O b. $416.00 O c. $408.00 O d. $432.00

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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On March 1 a commodity's spot price is $400 and its June futures price is $416.
On May 1 the spot price is $440 and the June futures price is $448.
A company entered into futures contracts on March 1 to hedge its purchase of the
commodity on May 1.
The effective price that the company pays for the commodity after taking the hedge into
account is:
a. $400.00
Ob. $416.00
O c. $408.00
O d. $432.00
Transcribed Image Text:On March 1 a commodity's spot price is $400 and its June futures price is $416. On May 1 the spot price is $440 and the June futures price is $448. A company entered into futures contracts on March 1 to hedge its purchase of the commodity on May 1. The effective price that the company pays for the commodity after taking the hedge into account is: a. $400.00 Ob. $416.00 O c. $408.00 O d. $432.00
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