In May, Mr. Smith planted a wheat crop, which he expects to harvest in September. He anticipates the September harvest to be 10,000 bushels and would like to hedge the price he can get for his wheat by taking a position in a September wheat futures contract.

a. Explain how Mr. Smith could lock in the price he sells his wheat with a September wheat futures contract trading in May at \(f_{0}=\$ 4.50 / \mathrm{bu}\). (contract size of 5,000 bushels).

b. Show in a table Mr. Smith's revenue at the futures' expiration date from closing the futures position and selling 10,000 bushels of wheat on the spot market at possible spot prices of \(\$ 4.00 / \mathrm{bu} ., \$ 4.5 \mathrm{O} / \mathrm{bu}\)., and \(\$ 5.00 / \mathrm{bu}\). Assume no quality, quantity, or timing risk.

c. Give examples of the three types of hedging risk in the context of problem b.

d. How much cash or risk-free securities would Mr. Smith have to deposit to satisfy an initial margin requirement of \(5 \%\) ?