1. Suppose you are Chief Financial Officer at Beazley Confectionery, Inc. and you purchase a large quantity of cocoa each month. You are concerned about the price of cocoa one month from now. You want to guarantee that you will not pay more than $0.80 per pound for forty-five thousand pounds. You do not want to pay for insurance, but you do want to lock in a price of $0.80 per pound for forty-five thousand pounds.

1. Show the economics of a futures transaction for spot prices on delivery date of $0.70, $0.80, and $0.95.
2. What is the variability of Beazleys total outlays under the futures contract?
3. If at the time of delivery, cocoa is $0.70 per pound, should you have foregone entering into the futures contract? Why or why not?