CornGrower is going to sell corn in one year. In order to lock in a fixed selling

Question:

CornGrower is going to sell corn in one year. In order to lock in a fixed selling price, CornGrower buys a put option and sells a call option on each bushel, each with the same strike price and the same one-year expiration date.

The current price of corn is 3.59 per bushel, and the net premium that CornGrower pays now to lock in the future price is 0.10 per bushel.

The continuously compounded risk-free interest rate is 4%.

Calculate the fixed selling price per bushel one year from now.

(A) 3.49

(B) 3.63

(D) 3.74

(E) 3.84

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Derivative Pricing

ISBN: 9780367734213

1st Edition

Authors: Ambrose Lo

See More Books

Question Posted: Nov 22, 2023 08:16 AM

See More Questions

Last Sale Net Bid Ask Open Int Puts Last Sale Net bid Ask Vol Open Int 16Aug 155.00(1619H155-E) 6.45 0.75 6.95 7.25 9 16Aug 155.00(1619T155-E) 1.18 (0.75) 1.17 1.25 61 4505 16Aug 166.00(1619H160-E)...
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
14. The higher the amount of dividends a stock pays, the a. the lower its dividend yield. b. the higher the value of a call option. c. the value of a call will increase immediately after the...
Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An...
The Rice Company signed a contract to build a dam over a period of three years for a price of $10,000,000. Information relating to the performance of the contract is summarized as follows: Required...
a. In Section 21-3, we calculated the risk (beta) of a six-month call option on Amazon stock with an exercise price of $900. Now repeat the exercise for a similar option with an exercise price of...
Special interest magazines like Flying are useful to "zero-in" on target markets. T F
Todd Motor Company manufactures automobiles. During September 2010 the company purchased 5,000 head lamps at a cost of $9 per lamp. Todd withdrew 4,650 lamps from the warehouse during the month....
Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows: April May June July Unit Sales 58,000 75,000 98,000 84,000 The company is now...
The following table shows 1-year European call and put option premiums at two strike prices The continuously compounded risk-free interest rate is 6%. Describe actions you could take to construct an...
Determine which of the following statements about options is true. (A) Naked writing is the practice of buying options without taking an offsetting position in the underlying asset. (B) A covered...
Six Sigma is a well-recognized quality management system that employs improvement projects to improve business processes to reduce product and service defects, reduce costs, and increase profits....
Let $\theta$ and $\phi$ be the polar coordinates. Introduce the complex numbers $z$ and $\bar{z}$, where $$\begin{equation*} z=e^{i \phi} \tan (\theta / 2) \equiv \xi+i \eta \tag{5.393}...
Suppose the profit $P$ (in dollars) of a certain item is given by $P=1.25 x-850$, where $x$ is the number of items sold. a. Graph this profit relationship. b. Interpret the value of $P$ when...
(a) Draw a simplified ray diagram showing the three principal rays for an object located outside the focal length of a diverging lens. (b) Is the image real or virtual? (c) Is it upright or inverted?...
Air at $1 \mathrm{~atm}$ and $25^{\circ} \mathrm{C}$ flows in a 4-cm-diameter glass pipe at a velocity of $7 \mathrm{~m} / \mathrm{s}$. The friction factor for this flow is (a) 0.0266 (b)...
Find the regime of the boundary layer at the location of $0.1 \mathrm{~m}$ from the leading edge of an aerofoil, if the airspeed is $80 \mathrm{~ms}^{-1}$, and air condition is at that of sea...
Show that {1, cosx, cos(2x), cos(3x),...} is an orthogonal set in C[0, ] with respect to the inner product (f, g) = n0 f(x)g(x)dx.
In Problem 8.43, determine the smallest value of for which the rod will not fall out of the pipe. IA -3 in.-
A motor with a.200-horsepower output is needed in the factory for intermittent use A Graybar motor costs $7000, and has an electrical efficiency of 89%. A B1ueball motor costs $6000 and has an 85%...
Plan A requires a $100,000 investment now. Plan B requires a~ $80,000 investment now and an additional $40,000 investment at a later time. At 8% interest, compute the breakeven point for the timing...
A low-carbon-steel machine part, operating in a corrosive atmosphere, lasts 6 years, and costs $350 installed. If the part is treated for corrosion resistance it will cost $500 installed. How long...
Igor was killed in action while serving in Iraq. His duty station at the time he was deployed was Fort Benning, Georgia, where he and his wife, Hailey, had lived for the previous three years. In...
On January 1 2020, sheld co issued a 10 year bond with a $100000 maturity value and an annual coupon rate of 6%. Interest is paid june 30 and december 31. The annual market rate is issuarance was 4%....
What is the present value of receiving $1,200 per year, at an annual discount rate of 11 percent, if the first payment is received 7 years from now and the last payment is received 25 years from now?...

CornGrower is going to sell corn in one year. In order to lock in a fixed selling

Question:

Step by Step Answer:

E To lock in a fixed selling price CornGrower enters into a short synthet...View the full answer

Derivative Pricing

Students also viewed these Business questions