P 12-2 The economics of derivatives

In July of 2016, Sue enters into a forward agreement with Ann to lock in a sales price for wheat. Sue anticipates selling 300,000 bushels of wheat at the market in March of 2017. Ann agrees to a forward with Sue to buy 300,000 bushels at $5.20. Sues cost for the wheat is $4.90 per bushel. The contract allows for net settlement.

Required: Determine the economic income of the sales transaction at various price levels at maturity for the forward. Consider market prices of $5.00, $5.10, $5.20, $5.30, and $5.40. Make a table similar to the Gre copper example found in the chapter.

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P 12-3 The economics of derivatives

Consider the same basic facts as in P 12-2, but instead of a forward contract Sue purchases put options to sell 300,000 bushels at $5.20 per bushel. The options cost $0.05 a bushel.

Required: Determine the economic income of the sales transaction at various price levels at maturity for the option. Consider market prices of $5.00, $5.10, $5.20, $5.30, and $5.40. Make a table similar to the Gre copper example.

Need P 12-3 solved. Added P 12-2 for context. Thank you!

The following table outlines what the impact on economic income-ignoring taxes-would be in an unhedged situation compared to if Gre hedges the transaction with a forward