Question
1. Suppose you own 5,000 shares that are worth $25 each. How can put options be used to provide you with insurance against a decline
1. Suppose you own 5,000 shares that are worth $25 each. How can put options be used to provide you with insurance against a decline in the value of your holding over the next four months?
2. A stock when it is first issued provides funds for a company. Is the same true of an exchangetraded stock option? Discuss.
3. Explain why a futures contract can be used for either speculation or hedging.
4. A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months. The livecattle futures contract on the Chicago Mercantile Exchange is for the delivery of 40,000 pounds of cattle. How can the farmer use the contract for hedging? From the farmers viewpoint, what are the pros and cons of hedging?
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