15 points It is January 6 A Canadian Producers cooperative that is based in Ontario expects to buy 7,500 tons of DAP fertilizer at the beginning of April 202 Because of a recent diplomatic issue between Canada and the supplier country, the companys management is worried that the price may rise by April On January 6, the company buys April 2021 DAP FOB NOLA Apr '21 (JPJ21) futures CALL options with a US$380 per ton strike price for a premium of US$50 per ton The April 2021 DAP FOB NOLA futures price was US$3950 per ton when the company bought the CALL options The exchange rate is trading at 0 80 US$ per CND$ on January 6 on the CME Group exchange DAP FOB NOLA futures contract size is 100 tons Each option contract is based on one DAP FOB NOLA futures contract What right does the cooperative obtain How many options contracts does the cooperative need What would be the US$380 per ton per bushel CALL option contracts be worth ( i e , intrinsic value) if the April 2021 DAP FOB NOLA futures price rose to US$550 per ton by the beginning of April What would the option contracts be worth if the April DAP FOB NOLA futures price declined to US$350 per ton by April 2021 (Please answer in Canadian dollars assuming an exchange rate of 0 80 US$ per CND$ at the beginning of April 2021) Suppose the April DAP FOB NOLA futures price rose to US$550 per ton by April 2021 and that the company can get CND$20 per ton adjusted basis over the April DAP FOB NOLA futures What cash market price ( i e , S 2 ) would be realized in April 2021 (in Canadian dollars assuming an exchange rate of 0 80US$ per CND$ by April 2021) Suppose the April DAP FOB NOLA futures price rose to US$550 per ton by April 2021 and that the cooperative can get CND$20 per ton adjusted basis over the April DAP FOB NOLA futures price What effective (net) buying price per bushel would the cooperative actually realize for the fertilizer, considering the profits or losses on the CALL options and the cash payment from the purchases of DAP fertilizer Would the result be different if instead, the company hedged with futures Show your work

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[15 points]: It is January 6. A Canadian Producers cooperative that is based in Ontario expects to buy 7,500 tons of DAP fertilizer at the beginning of April 202 Because of a recent diplomatic issue between Canada and the supplier country, the companys management is worried that the price may rise by April. On January 6, the company buys April 2021 DAP FOB NOLA Apr '21 (JPJ21) futures CALL options with a US$380 per ton strike price for a premium of US$50 per ton. The April 2021 DAP FOB NOLA futures price was US$3950 per ton when the company bought the CALL options. The exchange rate is trading at 0.80 US$ per CND$ on January 6 on the CME Group exchange. DAP FOB NOLA futures contract size is 100 tons. Each option contract is based on one DAP FOB NOLA futures contract.

What right does the cooperative obtain? How many options contracts does the cooperative need?
What would be the US$380 per ton per bushel CALL option contracts be worth (i.e., intrinsic value) if the April 2021 DAP FOB NOLA futures price rose to US$550 per ton by the beginning of April? What would the option contracts be worth if the April DAP FOB NOLA futures price declined to US$350 per ton by April 2021? (Please answer in Canadian dollars assuming an exchange rate of 0.80 US$ per CND$ at the beginning of April 2021).
Suppose the April DAP FOB NOLA futures price rose to US$550 per ton by April 2021 and that the company can get CND$20 per ton adjusted basis over the April DAP FOB NOLA futures. What cash market price (i.e., S₂) would be realized in April 2021 (in Canadian dollars assuming an exchange rate of 0.80US$ per CND$ by April 2021)?
Suppose the April DAP FOB NOLA futures price rose to US$550 per ton by April 2021 and that the cooperative can get CND$20 per ton adjusted basis over the April DAP FOB NOLA futures price. What effective (net) buying price per bushel would the cooperative actually realize for the fertilizer, considering the profits or losses on the CALL options and the cash payment from the purchases of DAP fertilizer? Would the result be different if instead, the company hedged with futures? Show your work.