1. COMMODITY FUTURES MARKET ANALYSIS (20 pts. total, 10 pts each) A. KAAPA Ethanol, LLC, is an ethanol company located in Minden, Nebraska. It has been operating for over 20 years and produces approximately 80 million gallons of ethanol per year, using corn as its input to make ethanol. Assume that you have just been hired by KAAPA as the director of its commodity risk program. It is your responsibility to minimize price volatility and uncertainty in the corn market - the owners of the company do not like financial surprises! Your job is to use the futures market in order to reduce risk associated with corn prices. The company's chief operating officer (COO) has told you that the company will need 100,000 bushels of corn for December 2020 in order to make its ethanol production targets for the first quarter of the year. You check the CBOT futures board for the DEC20 Corn contract and see that it is trading at $3.5875 per bushel, so you make your move. 1. You decide to trade DEC20 corn futures contracts to reduce your price risk. Which type of player are you? (2 pts.) Circle one: Hedger Speculator sell DEC20 corn futures contracts? 2. If you want reduce price risk, should you buy (2 pts.) Circle one: Sell Buy 3. When May 1st rolls around, you offset your futures position. The DEC20 futures contract price is now $4.0000 per bushel. Also, on December 1st, you buy the corn in the cash market price for $4.0225 per bushel. Assume there is no broker fee. Be sure to show all of your work for full credit. a. Calculate your per bushel (profit or loss) in the futures market and circle which one? (2 pts.) b. Calculate your total (profit / loss) in the futures market and circle which one? (2 pts.) c. Accounting for profit/loss in the futures market, what is the effective price per bushel, also called net price per bushel, you pay for your corn? For full credit, you must explain or mathematically show how you reached that net price. (6 pts. l 1. COMMODITY FUTURES MARKET ANALYSIS (20 pts. total, 10 pts each) A. KAAPA Ethanol, LLC, is an ethanol company located in Minden, Nebraska. It has been operating for over 20 years and produces approximately 80 million gallons of ethanol per year, using corn as its input to make ethanol. Assume that you have just been hired by KAAPA as the director of its commodity risk program. It is your responsibility to minimize price volatility and uncertainty in the corn market - the owners of the company do not like financial surprises! Your job is to use the futures market in order to reduce risk associated with corn prices. The company's chief operating officer (COO) has told you that the company will need 100,000 bushels of corn for December 2020 in order to make its ethanol production targets for the first quarter of the year. You check the CBOT futures board for the DEC20 Corn contract and see that it is trading at $3.5875 per bushel, so you make your move. 1. You decide to trade DEC20 corn futures contracts to reduce your price risk. Which type of player are you? (2 pts.) Circle one: Hedger Speculator sell DEC20 corn futures contracts? 2. If you want reduce price risk, should you buy (2 pts.) Circle one: Sell Buy 3. When May 1st rolls around, you offset your futures position. The DEC20 futures contract price is now $4.0000 per bushel. Also, on December 1st, you buy the corn in the cash market price for $4.0225 per bushel. Assume there is no broker fee. Be sure to show all of your work for full credit. a. Calculate your per bushel (profit or loss) in the futures market and circle which one? (2 pts.) b. Calculate your total (profit / loss) in the futures market and circle which one? (2 pts.) c. Accounting for profit/loss in the futures market, what is the effective price per bushel, also called net price per bushel, you pay for your corn? For full credit, you must explain or mathematically show how you reached that net price. (6 pts. l