About the derivatives markets

Assignment Help Financial Management

Reference no: EM131045133

Derivatives Markets:

To plant and harvest 20,000 bushels of corn, Farmer incurs fixed and variable costs totaling $33,000 at the time of the harvest. The current spot price of corn is $1.80 per bushel and the six-month interest rate is 4.0%. Farmer will harvest and sell her corn in 6 months. Farmer has the opportunity to hedge all 20,000 bushels using put options with strike price $1.80 for a total cost of $2,400

a) If Farmer decides to hedge, what will her marginal change in profits be if the spot price of corn drops from $1.80 to $1.75 by the time she sells her crop in 6 months?

b) Corn call options with a $1.75 strike price are trading for a $0.14 premium. Farmer decides to hedge her 20,000 bushels of corn by selling short call options. What is the total premium she will earn on her short posiition and what will her exposure look like in 6 months?

c) Corn call options with a $1.70 strike price are trading for a $0.15 premium. Farmer decides to hedge her 20,000 bushels of corn by selling short call options. What will her profit or loss be if the spot price in 6 months is $1.60 per bushel?

Reference no: EM131045133

Questions Cloud

Derivatives markets-what is the floor in her strategy : To plant and harvest 20,000 bushels of corn, Farmer incurs fixed and variable costs totaling $33,000 at the time of the harvest. The current spot price of corn is $1.80 per bushel and the six-month interest rate is 4.0%. Farmer bought $1.70 strike pu..

What roles and functions do you perform in your job : What is the most difficult part of the job? How has your job affected you as a person (positives/negatives)? P What advice would you give to a person just starting ouiin his/her career as a social worker?

Corporations voted to approve the merger : The boards of directors of DuMont Corp. and Epsot, Inc., agreed to enter into a friendly merger, with DuMont to be the surviving entity. The stock of both corporations was listed on a national stock exchange. In connection with the merger, both co..

Describe approach you would take in performance feedback : Describe the approach you would take in your performance feedback session with James. What would you say, in what sequence would you say it, and what information would you reference to back up what you are saying?

About the derivatives markets : To plant and harvest 20,000 bushels of corn, Farmer incurs fixed and variable costs totaling $33,000 at the time of the harvest. The current spot price of corn is $1.80 per bushel and the six-month interest rate is 4.0%. If Farmer decides to hedge, w..

What is the npv of this project if the required return : What is the IRR for this project? What is the NPV of this project if the required return is 6 percent? What is the NPV of the project if the required return is 0 percent? What is the NPV of the project if the required return is 23 percent?

Interpret the function of the financial balance sheet : Examine the role of management as it relates to finance in a corporation. In your post, discuss the role of management by addressing the following prompts: Explain the various aspects of finance that management must understand. Interpret the function..

Calculate monthly discrete returns : MAF759 - QUANTITATIVE METHODS FOR FINANCE. Calculate monthly discrete returns (hint: holding period returns) for the NASDAQ index, Intel Corporation (INTC) and Microsoft Corporation (MSFT) stocks prices, respectively

Distribution of speed at one location on a highway : Suppose the distribution of speed at one location on a highway is bell shaped with a mean of 73 mph and a standard deviation of 4 mph. About 95% of vehicles at that location travel between

User Account

All Pages