On June 15 a beef producer is committed to purchasing 480,000 pounds of live cattle on NOV 15(same year) and decides to use the DEC live cattle futures contracts to hedge this purchase. Every futures is for 40,000 pounds of cattle. Given are the standard deviations and the correlation of the spot and futures prices: S =1.5; F =1.2 and SF = 0.6.

3.1 Use a time table to show how the beef producer opens a minimum variance hedge ratio hedge today.

3.2 On NOV 15 the beef producer conduct his purchase at the spot market and closes out his hedge. Use notations and the same table used in 3.1 to describe the final purchasing price.