Fill in the blanks. Solve the following problem, and make sure you round up/down your math calculations to the nearest whole number. A farmer is planning to sell his live-stock (pigs) in three months by December. He has 1,200 piglets he would like to sell and maximize his profits. At this time the spot price is $200 dollars per adult pig. In three months, his piglets will be adult pigs. He also knows that in the next three months the competition for pork meat will be fierce and the price of meat may go down. Therefore, he is trying to figure out how to make the most of it in each sale. He hires you as his finance advisor to help figure out the best way to protect his business and make some profit.

Terms: Current market price S= Spot price of asset/per adult pig $200 Inventory= Number of pigs in inventory for sale So= Total value of asset Hedge f= Futures price per pig $190 fc= Futures contract size fh= Futures contract price So/fh= Hedge Ratio (number of contracts available for sale) Offset Soffset= spot price per pig $180 Inventory= Number of pigs in inventory for sale ST= Total value of asset/inventory Gain/loss= ST-So Long Futures fL= Futures price per pig $170

fc= Futures Contract size/how many pigs per contract fp= Futures Contract Price fh-fp=Futures Gain/Loss per contract HL= Hedge Ratio or number of contracts = So/fp Tf= total futures Gain/loss = (HL x fp) - So Market Price today Todays Spot price per pig is $200 dollars per pig Inventory or Number of pigs for sale is 1,200 What is the total Value of asset/pigs for sale? 1)_________________ Hedge (short sell) sell Futures Futures price per pig $190 Futures Contract size: 25 pigs per contract What is the Futures Contract price? 2)____________________ What is the hedge ratio (number of contracts)? 3)____________________ Offset Spot price per pig $180 Number of pigs in inventory 1,200 Total value of asset/inventory 4)____________________ Gain/loss: 5) _______________________ Long Futures (buy Futures) Maturity to offset Futures price per pig $170 Contract size 25 pigs Futures Contract price 6)______________________ Futures Gain/loss 7) _____________________ Hedge Ratio (number of Contracts) 8)______________

Total Futures gain/loss 9)_____________________ 10) (Minimum one paragraph, no less than five sentences) As the farmers Finance Advisor what would be your recommendations to maximize his profits?