2. Hedging Using Futures Consider a farmer who plans to sell 6,000 bushels of corns on...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
2. Hedging Using Futures Consider a farmer who plans to sell 6,000 bushels of corns on date T. The date-T spot price of corn is normally distributed with mean $500 per bushel and standard deviation $50 per bushel. To hedge the price risk, the farmer considers shorting corn futures with delivery on date T. The futures price is $480 per bushel, and one contract is to deliver 5,000 bushels. In addition, the farmer can take only integer number of contracts (i.e, a fraction of contract such as 0.1 is NOT allowed). (a) How may contracts does the farmer need to take? (b) What is the mean of the total revenue? (c) What is the standard deviation of the total revenue? 2. Hedging Using Futures Consider a farmer who plans to sell 6,000 bushels of corns on date T. The date-T spot price of corn is normally distributed with mean $500 per bushel and standard deviation $50 per bushel. To hedge the price risk, the farmer considers shorting corn futures with delivery on date T. The futures price is $480 per bushel, and one contract is to deliver 5,000 bushels. In addition, the farmer can take only integer number of contracts (i.e, a fraction of contract such as 0.1 is NOT allowed). (a) How may contracts does the farmer need to take? (b) What is the mean of the total revenue? (c) What is the standard deviation of the total revenue?
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
A force of 24N is applied to a wrench which is 0.4m in length. If the force is applied at an angle of 15 degrees, find the torque in N-m. Round off to two decimal places.
-
The following information was taken from the most recent statement of cash flows of Innovative Electronics Company: Net cash provided by operating activities ....... $ 845,000 Net cash used by...
-
The drawing shows two thermometers, A and B, whose temperatures are measured in oA and oB. The ice and boiling points of water are also indicated. (a) Using the data in the drawing, determine the...
-
Are there issues of trust between people in your department? In your organization?
-
The operations vice president of First Bank of Eagle, Kristin Wu, has been interested in investigating the efficiency of the banks operations. She has been particularly concerned about the costs of...
-
Attitudes are comprised of three dimensions:intention, affect, and _ _ _ _ _ _ _ . Question content area bottom Part 1 A . moods B . cognition C . agreeableness D . values E . emotions
-
Create a java program that, via a java GUI and event driven programming, plays a simple game: trying to predict if the next random number between 1 and 100 will be higher or lower than the current...
-
BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $137,700 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA...
-
Halsted Corporation has identified three activity pools in its manufacturing process: equipment maintenance, setups, and quality control. Total cost assigned to the three pools is $214,500, $101,400,...
-
The flow between two concentric cylinders is called annular flow. Find velocity distribution in a cross section for hydrodynamically fully develop annular flow with constant thermophysical properties...
-
Sierra Company manufactures soccer balls in two sequential processes: Cutting and Stitching. All direct materials enter production at the beginning of the cutting process. The following information...
-
Snicker and Doodle formed a corporation called Financial Advisors, Inc., each individual taking 50% of the authorized common stock. Snicker is a CPA and a member of the AICPA and NYSSCPA. Doodle is a...
-
Assume that stock market returns do not resemble a single-index structure. An investment fund analyzes 100 stocks in order to construct a mean-variance efficient portfolio constrained by 100...
-
Aztec Furnishings makes hand-crafted furniture for sale in its retail stores. The furniture maker has recently installed a new assembly process, including a new sander and polisher. With this new...
Study smarter with the SolutionInn App