Consider the following information on wheat options on futures contract:

Wheat Futures Options ( prices in cents per bushel)

Futures price = 605.75

Exercise price = 610

Call price = 7.50

Put price = 12.50

Risk-free rate = 3.15%

Expiration = 75 days

One contract = 5000 bushels

1. Determine the intrinsic and time values of the futures options.
2. Determine the lower bounds the put and call options on futures
3. Determine whether put-call parity on futures holds and explain.
4. Suppose you buy futures contract and decide to protect yourself using put option on futures. Determine your total payoff at expiration and the break-even futures price given the following futures prices: = 570, 580, 590, 600, 610, 620, 630 and 640.
5. Suppose you initially buy one put option contract on wheat futures contract with 75 days to expiration. 45 days later you observe futures price to be = 565.

1. Would you exercise the put option? Give reason
2. What is the payoff on your put option if you exercise the put? Discuss the payment process
3. Assume you exercise the put option and take a position in futures contract. On the delivery day, you observe the spot price to be 545. What is your net payoff on your investment strategy?