On May 1 a Kansas farmer entered into a short futures contract to sell 250,000 bushels of wheat for 550 cents per bushel by entering into a futures contract that matures on October 31.

a) On September 30th the farmer closed out his contract by taking a long futures position at a price of 480 cents per bushel and sells 250,000 bushels of wheat in the spot market for 480 cents per bushel. Calculate the effective price received by the farmer (show the gain or loss on the futures contract plus the amount received in the spot market and combine them to get the effective price).

b) Repeat the question for a closing futures price of 640 cents per bushel and a spot price of 640 cents per bushel.

c) Instead of the outcomes in part a) & b), assume the farmer sells her 250,000 bushels of wheat for 480 cents per bushel on Oct 1, and closes out the futures contract at a price of 465 cents per bushel also on Oct 1. Calculate the effective price received by the farmer. (You need to combine the results in both the spot market and futures market to get the final effective price)

d) Assume that the farmer has a smaller crop than expected and only sells 195,000 bushels of wheat in the spot market on Oct 1. Repeat part c) (she sells the 195,000 bushels of wheat for 480 cents and closes out the futures contract for 250,000 bushels for 465 cents) calculate theeffective price received by the farmer.