25. Suppose that price and quantity are positively correlated as in this table: Price Quantity Revenue ($2)
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25. Suppose that price and quantity are positively correlated as in this table:
Price Quantity Revenue
\($2\) 0.6m bu $1.2m
\($3\) 0.934m bu \($2.8m\) There is a 50% chance of either price. The futures price is \($2.50\). Demonstrate the effect of hedging if we do the following:
a. Short the expected quantity.
b. Short the minimum quantity.
c. Short the maximum quantity.
d. What is the hedge position that eliminates variability in revenue? Why?
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Related Book For 
Derivatives Markets Pearson New International Edition
ISBN: 978-1292021256
3rd Edition
Authors: Robert L. Mcdonald
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