You are the owner of a factory. You need 5000 lbs. of corn in two week. The current corn price is $2.10 per lb. There is a futures contract calling for delivery of 5000 lbs. of corn in two weeks. You buy the futures contract at a price of $2.25 per lb. and hold the futures position until the delivery day.
1. The market price of the corn on the delivery day is $2.50 per lb. What is your cost per lb. on the delivery day? Why?
2. The market price of the corn on the delivery day is $2.00 per lb. What is your cost per lb. on the delivery day? Why?