m y REVIEW View Help Search Question 3 You are a wheat buyer for General Mills. You will need to purchase wheat in June to keep the processing mill running. You will decide you will use futures and/or options to hedge your upcoming wheat purchases. May wheat futures are trading at 544'6 and July wheat futures are trading at 542'6. The following table summarizes wheat option strikes and premiums. Option May call May put May call May put July call July put July call July put Strike 520 520 590 590 Premium 39'6 15'1 14'2 49'3 33'2 30'4 16'2 63'2 540 540 590 590 a. Which futures contract will you use for your pricing strategy? Why? (5 points) b. Suppose you hedge you wheat purchase with the wheat futures. What was your initial futures position? (5 points) c. Suppose you hedged your wheat purchase with the wheat futures and when you buy your wheat in June the futures price is 570'0 and basis is $0.10 over. What is the cash price you paid for the wheat? What is you net purchase price for the wheat? (10 points) Focus d. Instead of hedging with a futures contract suppose you had sent a fence. Which option did you buy and which one did you sell to set your fence? (10 points) e. Using the fence you set in part d and the futures price for wheat 570'0 and a basis of $0.10 over, calculate your net purchase price. (20 points)