Only answer number 2

Day Futures Price 0 $520.50 1 $522.64 2 $524.54 3 $526.23 4 $527.80 5 $529.66 6 $531.54 7 $533.17 8 $535.38 9 $536.87 10 $538.95

SL futures Contract Size: 27,500 Board Feet Price: $.$$ Per 1,000 Board Feet E.g. if the price quote is $500, the contract value is ($500/1000)*27,500 = $13,750 Initial Margin is $3,000/contract, maintenance margin is $1,350/contract Current spot price (Feb. 2023): 520/1,000 board feet Question 1: You are in charge of managing lumber price risk for a house builder (e.g. KB Homes, Lennar, Centex, etc.) that operates in the American southwest. The building season is year-round, but lumber prices tend to fluctuate throughout the year. The purpose of the risk management program is to reduce the price uncertainty. Your company receives lumber delivery of 1,000,000 board feet every other month, beginning in January.

Question 2: Assume that you open a hedge for the May delivery. The May delivery futures price is $524.50/1000 board feet. Assume further that you close the position in April when the May delivery futures price is $530.25/1000 board feet and the spot price is $528.00. Using the definition of basis, calculate your gain/loss on this contract for a delivery of 1,000,000 board feet of lumber.