Chapter Review and Self Test Problems

23.1 Futures Contracts Suppose Golden Grain Farms (GGF) expects to harvest 50,000 bushels of wheat in September. GGF is concerned about the possibility of price fluctuations between now and September. The futures price for September wheat is $2 per bushel, and the relevant contract calls for 5,000 bushels. What action should GGF take to lock in the $2 price? Suppose the price of wheat actually turns out to be $3. Evaluate GGF's gains and losses. Do the same for a price of $1. Ignore marking-to-market.

23.2 Options Contracts In the previous question, suppose that September futures put options with a strike price of $2 per bushel cost $.15 per bushel. Assuming that GGF hedges using put options, evaluate its gains and losses for wheat prices of $1, $2, and $3.

0 0

Post a comment