Question
In six months, a cereal company plans to sell 40,000 boxes of Wheat Crisps for $4.50 per box and will need to buy 20,000 bushels
In six months, a cereal company plans to sell 40,000 boxes of Wheat Crisps for $4.50 per box and will need to buy 20,000 bushels of wheat to do so. In doing so, it also incurs non-wheat costs of $26,000. The current spot price of wheat is $7.30 per bushel, and the six-month forward price is $7.52. The company will hedge by buying wheat forward. What total profit would be earned if the market price of wheat in six months is $6.70, $7.10, $7.50, and $7.90, respectively?
a. | $7,880; $7,880; $120; $120 | |
b. | $21,802; $21,802; $17,802; $9,802 | |
c. | $20,000; $12,000; $4,000; $4,000 | |
d. | $3,600; $3,600; $3,600; $3,600 | |
e. | $6,198; $1,802; $5,802; $5,802
please show work, thanks! |
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