Question
uestion: Starbucks uses forward markets to hedge its future purchases of milk. a. Suppose that on January 1, 2023, Starbucks took a long position in
uestion: Starbucks uses forward markets to hedge its future purchases of milk.\\na. Suppose that on January 1, 2023, Starbucks took a long position in a two-year\\nmilk forward (for delivery on January 1, 2025). If the spot price of milk was\\n$19.32 per pound, the risk-free rate was 2%, and the cost of storing milk was 5%\\n(both continuously compounded per year),
Starbucks uses forward markets to hedge its future purchases of milk.\\na. Suppose that on January 1, 2023, Starbucks took a long position in a two-year\\nmilk forward (for delivery on January 1, 2025). If the spot price of milk was\\n$19.32 per pound, the risk-free rate was 2%, and the cost of storing milk was 5%\\n(both continuously compounded per year), what was the arbitrage-free forward\\nprice that Starbucks agreed to pay?\\n2\\nb. Suppose Starbucks entered into the long two-year forward position at a delivery\\nprice of $22.22. On January 1, 2024, after one year had passed, the spot price of\\nmilk had fallen to $16.17 and the cost of storing milk had fallen to 4%. The risk-\\nfree rate remained at 2%. What was the value of Starbucks long forward position\\nwith one year remaining on the contract?
Starbucks uses forward markets to hedge its future purchases of milk.\\na. Suppose that on January 1, 2023, Starbucks took a long position in a two-year\\nmilk forward (for delivery on January 1, 2025). If the spot price of milk was\\n$19.32 per pound, the risk-free rate was 2%, and the cost of storing milk was 5%\\n(both continuously compounded per year), what was the arbitrage-free forward\\nprice that Starbucks agreed to pay?\\n2\\nb. Suppose Starbucks entered into the long two-year forward position at a delivery\\nprice of $22.22. On January 1, 2024, after one year had passed, the spot price of\\nmilk had fallen to $16.17 and the cost of storing milk had fallen to 4%. The risk-\\nfree rate remained at 2%. What was the value of Starbucks long forward position\\nwith one year remaining on the contract?
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