Mr. Gott Stockers pastures seers on some leased pasture. He expects to pasture these steers until the middle of September. At that time he plans to sell them at the local auction. He discusses the possibility of using options with his banker. Mr. Lender agrees that given Mr. Stockers' current financial position he cannot withstand a big market risk on his seers. Mr. Stockers expects to pay off a note at the bank with the sale of his steers by the end of September. He has a total of 650 head and his past production records indicate an average sale weight of 775 pounds per head. On April 1, Mr. Stockers has his broker, Fingers Meppelli, place the order for enough $154 puts to cover the cattle. Fingers informs Mr. Stockers he got into the October Feeder options for $2.15/cwt for the entire bunch of cattle, and he charge him $100 per round turn for each option. According to historical data the basis is usually $1.25/cwt over at the middle of September. Mr. Lender financed the premiums at 10% and expects the note to be paid by the time of the sale of the cattle. On September 15, Mr. Stockers sells his steers at the local auction for and offsets the option right before it expires. At that time the underlying futures price is $150.00/cwt. a) What were the total transaction costs associated with using options (interest on premiums, broker fees). b) What is the expected target price when the order is placed? c) Show the transactions in the cash and options market (use same format as presented in class). d) What is the realized price after the hedge is lifted (taking into account the added costs in a)? e) What was the basis when the hedge was lifted? f) Did basis narrow (strengthen) or widen (weaken) compared to expectations