5 X Autor 2 Harley Limmer AEC 455 - AutoSave DE File Hom Home Insert Draw Design Layout References Mailings Review View Help PROTECT wild 1 tha Font Editor Editing Paragraph Styles Dictate Paste Voice 4 Good fotor PROBLEM 6 (50 points) You manage a grain storage elevator. It is January and you bought 30,000 bushels of corn at $2.99/bu in the cash market with the purpose to sell it all in May and were concerned its value may move against you while you had ownership. Thus, you initiate a hedge to protect against an adverse price movement. The CME May com futures are trading at $3.25/bu. In May, the com futures price has decreased to $3.07/bu and the cash price has decreased to $2.85/bu. Assume the broker charges you a commission of S100 per contract. What is the position you should take in the futures market? 5 6 7 b. What kind of an adverse price movement are you trying to protect against by hedging: increasing prices or decreasing prices? 8 9 6. What is the number of futures contracts needed to fully hedge your corn on hand? 10 d. What is the target price? 11 e. Compute the gain loss in the futures market. 12 13 1. Has the basis strengthened/weakened? How do you know? Is it good/bad from your perspective? 14 g. Is this a perfect bodge? 15 h. Calculate the effective selling price (ESP). 16 DyFocus 100% 450 words Side 16 Type here to search O 3 f. Has the basis strengthened/weakened? How do you know? Is it good/bad from your perspective? g. Is this a perfect hedge? h. Calculate the effective selling price (ESP). i. Calculate your futures account net gain/loss accounting for broker's commission. j. Are you better/worse off as a result of hedging as opposed to no hedging at all? Why