You are a corn producer who has just harvested 100,000 bushels and placed it into storage on the farm. The nearby December corn futures contract is trading at $3.92/bu., and the May contract is trading at $4.12. The harvest basis is 52 cents under the December contract, but you expect the basis to reach 45 cents under the May contract in April of next year. You decide to sell the carry in the market (i.e. store grain into the spring of next year). What approximate price (per bushel) can you lock in for corn by hedging with the sale of futures? Assume 1 cent per bushel brokerage fees. $3.46 $3.66 $3.39 $4.56 $4.11
You are a corn producer who has just harvested 100,000 bushels and placed it into storage on the farm. The nearby December corn futures contract is trading at $3.92/bu., and the May contract is trading at $4.12. The harvest basis is 52 cents under the December contract, but you expect the basis to reach 45 cents under the May contract in April of next year. You decide to sell the carry in the market (i.e. store grain into the spring of next year). What approximate price (per bushel) can you lock in for corn by hedging with the sale of futures? Assume 1 cent per bushel brokerage fees. $3.46 $3.66 $3.39 $4.56 $4.11
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:You are a corn producer who has just harvested
100,000 bushels and placed it into storage on the
farm. The nearby December corn futures contract
is trading at $3.92/bu., and the May contract is
trading at $4.12. The harvest basis is 52 cents
under the December contract, but you expect the
basis to reach 45 cents under the May contract in
April of next year. You decide to sell the carry in the
market (i.e. store grain into the spring of next year).
What approximate price (per bushel) can you lock
in for corn by hedging with the sale of futures?
Assume 1 cent per bushel brokerage fees.
$3.46
$3.66
$3.39
$4.56
$4.11
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