Question
A large ethanol producer in Ft Atkinson, Wisconsin, Corn R Us processes corn into ethanol and sells it to the major oil companies to achieve
A large ethanol producer in Ft Atkinson, Wisconsin, "Corn R Us" processes corn into ethanol and sells it to the major oil companies to achieve the US regulated blend for their gas. "Corn R Us" needs 100,000 bushels of corn a week to produce the ethanol it is under contract to deliver.Two old farmers run "Corn R Us" and they know how volatile the price of corn can be, especially from June through November.For the corn in that last week of November they have bought call options with a strike price of $5.50 per bushel, for 100,000 bushels at a cost of $18,400 including commission and fees.In the third week of November they were able to purchase 100,000 bushels on the open market for $5.00 a bushel.What do they do?What is their total cost including all hedging and cost of corn.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started