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 of R50/per ton expiring in 1 month: Call options on what are selling at a premium of R0.87 per ton Put options on what are selling for R0.72 per ton Given the information above, will you need a call or a put option. If each option is for 100 tons,and you require 1000 tinsof wheat,demonstrate the outcome if, at expiry, the spot price of wheat is (i) R40 per ton and (ii) R60 per ton.
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 of R50/per ton expiring in 1 month:
Call options on what are selling at a premium of R0.87 per ton
Put options on what are selling for R0.72 per ton
Given the information above, will you need a call or a put option.
If each option is for 100 tons,and you require 1000 tinsof wheat,demonstrate the outcome if, at expiry, the spot price of wheat is (i) R40 per ton and (ii) R60 per ton.
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