22) Answer the following questions related to derivative contracts: (16 points) (a) Farmer Brown grows Number 1 red corn and would like to hedge the value of the coming harvest (Farmer Brown will need to sell his corn in the future). However, the futures contract is traded on the Number 2 yellow grade of corn. Suppose that yellow corn typically sells for 90% of the price of red corn. If he grows 100,000 bushels, and each futures contract calls for delivery of 5,000 bushels, how many contracts does Farmer Brown need to hedge his position? Will Farmer Brown take the long or short position? (b) What would Farmer Brown from part (a) have to do if he wanted to perfectly hedge his price risk of corn? If the corn harvest is poor, would you expect this to have any effect on today's futures prices for corn to be delivered (post-harvest) two years from today? Under what circumstances will there be no effect? (c) (d) Some agricultural price support systems have guaranteed farmers a minimum price for their output. Describe how the program provisions are similar to an option. What types of options is it similar to? What is the asset? The exercise price