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In six months, a cereal company plans to sell 20,000 boxes of Corn Crisps for $4.00 per box and will need to buy 10,000 bushels
In six months, a cereal company plans to sell 20,000 boxes of Corn Crisps for $4.00 per box and will need to buy 10,000 bushels of corn to do so. In doing so, it also incurs non-corn costs of $33,000. The current spot price of corn is $4.30 per bushel, and the effective six-month interest rate is 4 percent. The company will hedge by purchasing call options at $0.57 with a strike price of $4.20 per bushel. What total profit would the company earn if the market price of corn in six months is $3.70, $4.10, $4.50, and $4.90, respectively?
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