Please help, I have fallen behind due to online learning. Below is an example out of our textbook that we have to complete in preperation for our test later this week, I have no idea how to do it ... Your firm is one of the largest bakery’s in the area. As part of your risk management process, you are considering using options to hedge the price risk on your biggest input – wheat. You have determined that a price of R52/per ton would allow for you to keep the same profit margin as last year. The following wheat options offer a strike price of R50/per ton expiring in 1 month: Call options on wheat are selling at a premium of R0.87 per ton. Put options on wheat are selling for R0.72 per ton. If each option is for 100 tons, and you require 1000 tons of wheat, demonstrate the outcome if, at expiry, the spot price of wheat is (i) R40 per ton and (ii) R60 per ton We need to answer it in the following table format Stock Price ST = R 40 ST = R60 Cost for 1000 tons Payoff Total profit/loss Effective rate per ton
Please help, I have fallen behind due to online learning. Below is an example out of our textbook that we have to complete in preperation for our test later this week, I have no idea how to do it ...
Your firm is one of the largest bakery’s in the area. As part of your risk management process, you are considering using options to hedge the price risk on your biggest input – wheat. You have determined that a price of R52/per ton would allow for you to keep the same profit margin as last year. The following wheat options offer a strike price of R50/per ton expiring in 1 month:
- Call options on wheat are selling at a premium of R0.87 per ton.
- Put options on wheat are selling for R0.72 per ton.
If each option is for 100 tons, and you require 1000 tons of wheat, demonstrate the outcome if, at expiry, the spot price of wheat is
(i) R40 per ton and
(ii) R60 per ton
We need to answer it in the following table format
|
Stock Price |
ST = R 40 |
ST = R60 |
|
Cost for 1000 tons |
|
|
|
Payoff |
|
|
|
Total |
|
|
|
Effective rate per ton |
|
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