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 3000 tones 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 conne are also available; puts cost $15 and calls cost $18.

a. Describe how Hans can fully hedge using futures contracts.

b. Given the strategy in part a, what will be the total net amount received by Hans (for all 3000 tonnes) if the price of barley in October is

i. $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 part c, what will be the total net amount received by Hans (for all 3000 tonnes) if the price of barley in October is

i. $150 per tonne?

ii. $200 per tonne?

iii. $250 per tonne?