EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 24, Problem 16QP
a)
Summary Introduction
To compute: The amount of payment among farmer and exchange on day 1.
b)
Summary Introduction
To compute: The amount of payment among farmer and exchange on day 2.
c)
Summary Introduction
To compute: The amount of payment among farmer and exchange on day 3.
d)
Summary Introduction
To compute: The amount of payment among farmer and exchange on day 4.
e)
Summary Introduction
To compute: The amount of payment among farmer and exchange on day 5, total payment and whether the size of payment be different.
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10. A soybean farmer plans to sell a portion of their crop in October. To set up a short hedge, the
farmer purchases a put option with a strike price of 750/bu. at a premium of 30/bushel. In October,
the soybean cash price is 640/bu. and November soybean futures are trading at 655/bu. Fill in the
table given here to describe the actions this farmer will take in the cash & futures exchange to
hedge, the gain/loss the manufacturer will experience in these markets, and the net price that the
manufacturer will receive for soybeans.
Futures & Options Markets
Purchase a put option
Time Period
Spot Market
June
No action
Strike Price = 750/bu.
Premium 30/bu.
October
Gain/Loss
Net Price
A farmer sells futures contracts at a price of $6.70 per bushel on 10,000 bushels of corn. The spot price of corn is $6.55 at contract expiration. What is the farmer's profit on the futures contracts?
The futures price of a commodity such as wheat is $2.50 a bushel. Futures contracts are for 10,000 bushels, and the margin requirement is $2,500 a contract. The maintenance market requirement is $1,000. A speculator expects the price of the commodity to rise and enters into a contract to buy wheat.
d. If the futures price rises to $2.70, what must the speculator do?
e. If the futures price continues to decline to $2.32, how much does the speculatorhave in the account?
Chapter 24 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
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