During the month of February 2017, A farmer estimates that she will harvest 50 000kgs of corn by November 2017.

0. 1. The price on futures contracts for November 2017 corn is P6.00 per kg.
   2. Corn futures contracts are traded in 5000 kgs
1. Identify the risk that the farmer is facing [1 mark]
2. Determine the number of contracts and show, with calculations, how the farmer can hedge the risk that she is exposed to at harvest time considering that the price of corn can rise to P8.00 or fall to P5.00 per kg. [9 marks]

b) Thapelo owns 2000 shares of a Duke Limited which is listed on a local bourse. The shares are currently priced at P20 per share. The strike or exercise price is P15 per share. If the investor holds a call option, explain what should happen to hedged risk when the price rises to P25 at the end of the period.

With calculations, show what happens to the loss or profit

1. with hedging [3 marks]
2. without hedging [2 marks]