Question
In six months, a cereal company plans to sell 30,000 boxes of Wheat Crisps for $3.50 per box and will need to buy 15,000 bushels
In six months, a cereal company plans to sell 30,000 boxes of Wheat Crisps for $3.50 per box and will need to buy 15,000 bushels of wheat to do so. In doing so, it also incurs non-wheat costs of $9,000. The current spot price of wheat is $6.10 per bushel, and the effective six-month interest rate is 2 percent. The company will hedge by purchasing call options at $0.59 with a strike price of $6.10 per bushel. What total profit would the company earn if the market price of wheat in six months is $5.50, $5.90, $6.30, and $6.70, respectively?
a. | $13,527; $13,527; $10,527; $4,527 | |
b. | $4,473; $1,527; $4,527; $4,527 | |
c. | $13,500; $7,500; $1,500; $4,500 | |
d. | $5,664; $5,664; $336; $336 | |
e. | $2,700; $2,700; $2,700; $2,700
Please show work, thank you! |
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