Ms. Hunter is the chief financial officer for Atlanta Developers. In January, she estimates that the company will need to purchase 300,000 square feet of plywood in June to meet its material needs on one of its office construction jobs.

a. Suppose there is a June plywood contract trading at \(f_{0}=\) \(\$ 0.20 / \mathrm{sq}\). ft. (contract size is 5,000 square feet). Explain how Ms. Hunter could hedge the company's June plywood costs with a position in the June plywood contract.

b. Show in a table Ms. Hunter's net costs at the futures' expiration date of buying plywood on the spot market at possible spot prices of \(0.18 / \mathrm{sq}\). ft., \(0.20 / \mathrm{sq}\). ft., \(0.22 / \mathrm{sq}\). ft., and \(0.24 / \mathrm{sq}\). ft. and closing the futures position. Assume no quality, quantity, and timing risk.

c. Define the three types of hedging risk and give an example of each in the context of this problem.

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