Six months from now, Farmer Don will harvest 20,000 bushels of wheat. In doing so, he incurs costs of $212,000. The current spot price of wheat is $10.90 per bushel, and the effective six-month interest rate is 5 percent. Don has decided to hedge with a collar by purchasing $10.70-strike puts and selling $11.10-strike calls on 20,000 bushels of wheat. The puts have a premium of $0.65 per bushel, while the calls have a premium of $1.15 per bushel. What total profit would Don earn if the market price of wheat at harvest time is $10.30, $10.70, $11.10, and $11.50, respectively? $8,490; $16,490; $18,490; $18,490 You Answered $-6,000; $2,000; $10,000; $18,000 Correct Answer $17,000; $17,000; $17,000; $17,000 $12,500; $12,500; $20,500; $20,500 $-10,490; $-10,490; $-4,490; $3,510
Six months from now, Farmer Don will harvest 20,000 bushels of wheat. In doing so, he incurs costs of $212,000. The current spot price of wheat is $10.90 per bushel, and the effective six-month interest rate is 5 percent. Don has decided to hedge with a collar by purchasing $10.70-strike puts and selling $11.10-strike calls on 20,000 bushels of wheat. The puts have a premium of $0.65 per bushel, while the calls have a premium of $1.15 per bushel. What total profit would Don earn if the market price of wheat at harvest time is $10.30, $10.70, $11.10, and $11.50, respectively? $8,490; $16,490; $18,490; $18,490 You Answered $-6,000; $2,000; $10,000; $18,000 Correct Answer $17,000; $17,000; $17,000; $17,000 $12,500; $12,500; $20,500; $20,500 $-10,490; $-10,490; $-4,490; $3,510
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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Transcribed Image Text:Six months from now, Farmer Don will harvest 20,000 bushels of wheat. In doing so, he
incurs costs of $212,000. The current spot price of wheat is $10.90 per bushel, and the
effective six-month interest rate is 5 percent. Don has decided to hedge with a collar by
purchasing $10.70-strike puts and selling $11.10-strike calls on 20,000 bushels of
wheat. The puts have a premium of $0.65 per bushel, while the calls have a premium of
$1.15 per bushel. What total profit would Don earn if the market price of wheat at
harvest time is $10.30, $10.70, $11.10, and $11.50, respectively?
$8,490; $16,490; $18,490; $18,490
You Answered
$-6,000; $2,000; $10,000; $18,000
Correct Answer
$17,000; $17,000; $17,000; $17,000
$12,500; $12,500; $20,500; $20,500
$-10,490; $-10,490; $-4,490; $3,510
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