Gloria owns a large cattle farm with corn for feed being a major expense. To protect her profit and financial planning she enters into options for corn delivery. Because of her hedging efforts the local bank gives her favorable financial arrangements. Each option is for 5,000 bushels. Gloria wants the corn delivery so she purchases call options. Gloria has purchased 10 call options with a strike price of 8.50 per bushel for delivery in 4 months. The current spot price for feed corn is 7.35 per bushel. Each option costs $900. 2 points each

a. Are these option contracts in or out of the money? _________

b. What is the intrinsic value of each contract? ___________

c. What is the time value of each contract? ___________

d. What is the total amount that Gloria pays for purchasing all of the options? _________

e. What is the total savings or loss if the price moves to 10.35 per bushel, including the cost of the option? ___________

f. Would Gloria exercise the option if the price moves to 6.25 per bushel? ____________