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Derivative Markets Problem Two 6-month corn put options are available. The strike prices are 1.70 and 1.75 with premiums of 0.15 and 0.19, respectively. Total
Derivative Markets Problem
Two 6-month corn put options are available. The strike prices are 1.70 and 1.75 with premiums of 0.15 and 0.19, respectively. Total costs are 1.70 per bushel and 6-month interest rates are 4%.
Farmer Bob wishes to hedge 22,000 bushels for 6 months. What is the highest profit or minimum loss by using one of these two options if the spot price in 6 months is 1.50 per bushel?
a) 2,933 gain
b) 4,766 gain
c) 2,698 gain
d) 4,754 gain
e) -3,247 loss
need explanation
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