Question
In six months, a cereal company plans to sell 30,000 boxes of Corn Crisps for $4.00 per box and will need to buy 15,000 bushels
In six months, a cereal company plans to sell 30,000 boxes of Corn Crisps for $4.00 per box and will need to buy 15,000 bushels of corn to do so. In doing so, it also incurs non-corn costs of $38,000. The current spot price of corn is $5.10 per bushel, and the effective six-month interest rate is 3 percent. The company will hedge by selling a collar -- i.e., purchasing $5.30-strike call options at $0.37 per bushel and writing $4.90-strike put options at $0.23. What total profit would be earned if the market price of corn in six months is $4.50, $4.90, $5.30, and $5.70, respectively?
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