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You expect to deliver 50,000 bushels of wheat to the market in July. Assume you nedged your position by selling futures contracts on the full 50,000 bushels at a price of 443.25. The futures contracts are based on 5,000 bushels and are priced in cents per bushel. Assume the market price turns out to be 445.75 when you actually deliver the wheat. How much more or less would you have earned if you had not bought the futures contracts?

You expect to deliver 50,000 bushels of wheat to the market in July. Assume you nedged your position by selling futures contracts on the full 50,000 bushels at a price of 443.25. The futures contracts are based on 5,000 bushels and are priced in cents per bushel. Assume the market price turns out to be 445.75 when you actually deliver the wheat. How much more or less would you have earned if you had not bought the futures contracts?

Essentials Of Investments
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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please give full working and explain how to use the hedge ratio

 

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You expect to deliver 50,000 bushels of wheat to the market in July. Assume you hedged your position by selling futures contracts on the full 50,000 bushels at a price of 443.25. The futures contracts are based on 5,000 bushels and are priced in cents per bushel. Assume the market price turns out to be 445.75 when you actually deliver the wheat. How much more or less would you have earned if you had not bought the futures contracts? $625 more $1,250 more $625 less $1250 less
Transcribed Image Text:You expect to deliver 50,000 bushels of wheat to the market in July. Assume you hedged your position by selling futures contracts on the full 50,000 bushels at a price of 443.25. The futures contracts are based on 5,000 bushels and are priced in cents per bushel. Assume the market price turns out to be 445.75 when you actually deliver the wheat. How much more or less would you have earned if you had not bought the futures contracts? $625 more $1,250 more $625 less $1250 less
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