It is April, and Hans Anderson is planting his barley crop near Plunkett. Saskatchewan. He is concerned about losing his farm if his operations result in a loss at the end of the season. He expects to harvest 3,000 tonnes of barley and sell it in October. Futures contracts are available for October delivery with a futures price of $200 per tonne. Options with strike price of $200 per tonne are also available; puts cost $16 and calls cost $20 a Describe how Hans can fully hedge using futures contracts. b. Given the strategy in (a), what will be the total net amount received by Hans (for all 3,000 tonnes) if the price of barley in October is as follows: 1. $150 per tonne; ii. $200 per tonne iii. $250 per tonne c. Describe how Hans can fully hedge using options d. Given the strategy in (c), what will be the total net amount received by Hans (for all 3.000 tonnes) if the price of barley in October is as follows: i. $150 per tonne ii. $200 per tonne; iii. $250 per tonne e. Hans has asked for your advice regarding hedging. Discuss how the each of the following individually will influence your advice i. Hans does not expect to have much cash available between May and September ii. Hans thinks there is a 20% chance his crop will be destroyed by hail before he has a chance to harvest it iii. Hans's farming business will go bankrupt if his net revenues in October do not cover his costs. He estimates his costs will be $600,000. If his business goes bankrupt, Hans's bank will foreclose and a. Determine how Hans can fully hedge using futures contracts O A. Hans can wait until prices rise in the future. O B. Hans can take a short position in futures on 3,000 tonnes of barley for delivery in October O C. Hans can take an intermediate position in futures on 3,000 tonnes of barley for delivery in October. OD. Hans can take a long position in futures on 3,000 tonnes of barley for delivery in October b. Given the strategy in (a), what will be the total net amount received by Hans (for all 3,000 tonnes) If the price of barley in October is as follows: i. $150 per tonne: the total net amount received by Hans is ii. $200 per tonne: the total net amount received by Hans is iii. $250 per tonne: the total net amount received by Hans is (Round your answers to the nearest dollar) c. Determine how Hans can fully hedge using options. O A. Hans can sell the put options on 3,000 tonnes of barley. OB. Hans can purchase the put options on 3,000 tonnes of barley O C. Hans can sell the call options on 3,000 tonnes of barley OD. Hans can purchase the call options on 3,000 tonnes of barley. d. Given the strategy in (c), what will be the total net amount received by Hans (for all 3,000 tonnes) if the price of barley in October is as follows: i. $150 per tonne: total net amount is ii. 5200 per tonne: total net amount is iii. S250 per tonne: total net amount is (Round your answers to the nearest dollar) e. Hans has asked for your advice regarding hedging. Determine how the each of the following individually will influence your advice. i. Hans does not expect to have much cash available between May and September. In this case, Hans hedge ii. Hans thinks there is a 25% chance his crop will be destroyed by hail before he has a chance to harvest it. In this case, Hans should use iii. Hans's farming business will go bankrupt if his net revenues in October do not cover his costs. He estimates his costs to will be 5600,000. If his business goes bankrupt, Hans's bank will foreclose and take his house and farm. In this case, Hans should use iv. Hans's farming business will go bankrupt if his net revenues and take his house and farm. October do not cover his costs. He estimates his costs to will be $800,000. If his business goes bankrupt, Hans's bank will foreclose In this case, Hans should use
