Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose you operate a distillery in the U.S. and you purchase corn on a regular basis. It is December and you are in the process

Suppose you operate a distillery in the U.S. and you purchase corn on a regular basis. It is December and you are in the process of planning your corn purchases for the month of April wanting to take delivery of the corn during mid-April. May corn futures are currently trading at 5.75 dollars per bushel. The local basis is 5 cents per bushel over.

You go LONG on a May corn futures contract at 5.75 dollars per bushel and the basis is 5 cents underwent you actually buy corn from your supplier in April.

  1. What would be the net purchase price in April in the May Corn futures price is:

May futures price

Net purchase price

5.58 dollars per bushel

5.84 dollars per bushel

5.91 dollars per bushel

SHOW YOUR WORK. Use a T-account. Unsubstantiated answers will not be accepted

  1. What would your net purchase price be if May corn futures is 5.80 dollars per bushel and the basis is 7 cents per bushel over when you offset your futures position in April? Show your work. Use a T-account.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Retirees Complete Annuity Handbook

Authors: Scot Whiskeyman

1st Edition

8647470052, 979-8647470058

More Books

Students also viewed these Finance questions