3. XYZ is currently trading at $28 per share. You purchase a January put with a strike price of $30 per share. The premium is $3/share. Give both the total premium and the premium per share for all answers.

a. What is the current intrinsic value of the option?

b. What is the current extrinsic value of the option?

c. Is the option In-the-Money, Out-of-the Money, or At-the-Money?

d. what price must XYZ reach for you to break even if you exercise the option?

4. Jersey Brewers will need 100,000 bushels of wheat to brew a special summer microbrew offering. Expected revenues for the summer edition are $1,200,000. In order to have production ready for summer, the brewery will need the wheat in March. Jersey Brewers wants to make sure that the price of wheat will not increase between now and March, so they want to hedge the current price of 851 cents per bushel.

a. What transaction would Jersey Brewers make to initiate a hedge to lock in the March wheat price?

b. In March, cash corn is trading at 925 cents per bushel while March futures are trading at 928 cents per bushel. Input costs for the brew include the costs of the wheat plus $200,000 of additional input costs. In March, Jersey Brewers offsets their futures position and buy their wheat in the local market.

1. What is the basis on wheat at the time the position is offset?

2. Assuming revenue productions are correct. What is Jersey Brewers total profit or loss on the production of this brew?

3. What would the profit or loss have been on the brew, if the futures market had not been used?

5. December oats are currently trading at 325 cents per bushel. The following monthly charges are involved with carrying one bushel of oats.

1. Warehouse costs .05/bu

2. Insurance costs .015/bu

3. Interest costs ?

a. Determine the interest costs per month if annual interest rates are currently 1.85%

b. What are the total monthly carrying charges?

c. How much would it cost to carry oats till May?

d. Calculate the current price for May oats in a full carrying charge market.

e. Suppose May oats are trading at 375 cents per bushel. How would you take advantage of this price differential? Would a profit be guaranteed?

6. The cash price for corn in Kansas is $6.85 / bushel. December corn is trading on the CBOT for 695 cents per bushel. Suppose it cost 5 cents per bushel to deliver corn from Kansas to Chicago. Also assume it is December so you can deliver immediately. What would you do? How much money would you make? Is this profit guaranteed?

7. June silver is selling on NYmini for 3435 cents per ounce. The contract size for NYmini silver (New York delivery point) is 1000 oz. July silver is selling on Globex (Chicago delivery point) at 3445 cents per ounce. The contract size for silver on Globex is 5000 oz. It costs 3 cents per month to carry silver. Silver can be delivered from NY to Chicago for 3 cents per ounce.

a. What would you do?

b. What type of spread trade is this?

Two weeks later the price of June NYmini is 3430 cents per ounce and the price of July Globex silver is 3431 cents per ounce.

c. What is your before commission profit or loss, per transaction, if you unwind the spread?

d. What is your profit or loss if you must pay a round-turn commission of $10 per contract on the NYmini and a $25 per contract commission on Globex?