Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Your farm expects to produce 1000 tons of organic potatoes next summer. You would like to hedge the risk of uncertain wholesale prices on organic
Your farm expects to produce 1000 tons of organic potatoes next summer. You would like to hedge the risk of uncertain wholesale prices on organic potatoes next summer, but, unfortunately, futures contracts are available only on regular (not organic) potatoes. The expected price of organic potatoes is $400/ton with a standard deviation of $57; the expected futures price of regular potatoes is $270/ton with a standard deviation of $30. If the farmer optimally decided to hedge his risk by buying selling contracts on 1300 tons of regular potatoes, what is the correlation between the price of organic potatoes and the forward price of regular potatoes? Round your answer to 3 decimal digits. E.g., if you found the correlation to be 0.48554, write 0.486; if you found it to be 0.86457, write 0.865
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started