Now is January 2016. Sophie will buy 50,000 pounds of lean hog in March 2016. To hedge the hog price, she buys a March 2016 maturity lean hog contract at the future price of $1.20 per pound. Suppose that when the contract matures in March 2016, the market price of hog turns out to be $1 per pound. This future contract calls for the purchase of 50,000 pounds.

DON'T NEED A-D. NEED ACCURATE PAYOFF GRAPH

a) Calculate Sophie's payoff from purchasing 50,000 pounds of hogs in the spot market in March 2016;

b) Calculate Sophie's payoff from the future market in March 2016;

c) Calculate Sophie's total payoff from both the spot and future markets in March 2016;

d) If the market price of hog goes up to $1.50 per pound in March 2016, what's Sophie's total payoff?

e) Draw the future contract payoff graph for Sophie.