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1) A cereal farmer has a stock of wheat of 50 tonnes, and plans to sell them in a year. The spot price is 100
1) A cereal farmer has a stock of wheat of 50 tonnes, and plans to sell them in a year. The spot price is 100 / t, the 1-year interest rate is 1%, the cost of storing wheat is 0.5% of the value of the inventory, payable at maturity. What do you advise him to do wishes to hedge against fluctuations in the price of wheat, and if the price of wheat at one is 100.5 / t? What is the fair price of wheat at one year?
2) A miller plans to buy in a 100 tonnes of wheat. The spot price is 100 / t, the 1-year interest rate is 1%, the cost of storing wheat is 0.5% of the value of the inventory, payable at maturity. What do you advise him to do wish to hedge against fluctuations in the price of wheat, and if the price of wheat at one year is 102.5 / t? What is the fair price of wheat at one year?
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Authors: Howard M. Schilit, Jeremy Perler, Yoni Engelhart
4th Edition
126011726X, 9781260117264
