Determine the gain or loss for the company below, on its purchase in June and its futures hedge:

Date today:January 1

Date and amount of proposed future purchase of wheat:June 1 purchase of 1,000 bushels

Spot prices:January 1 spot price is $45 per bushel, assume June 1 spot price will be $50 per bushel

July futures contract prices: On January 1 the July futures contract price is $48 per bushel, assume on June 1 the July futures contract price will be $53 per bushel

Wheat contracts are for 1,000 bushels, which is the size of the hedge.Assume initial margins of 5% and broker loans at 7%.

HERE ARE THE OPTIONS

$4,930 loss (negative)

$70 loss (negative)

$430 gain (positive)

$1,470 gain (positive)