Question 3 (6.5 points): HedgeOctober 15th: A producer plans to sell wheat in early July; currently, July wheat futures aretrading at 680'6. The expected basis is $0.60 under.July 1•Does the producer have a long or short cash position?Does the producer have a long or short futures position?To hedge: The producer willper bushel.What is the expected cash price?(buy/sell) July wheat futures at 680'6⚫ The producer must(buy/sell) wheat locally in the cash market at 562'2per bushel.To offset their future position, they must.599'4 per bushel.• What is the actual basis?•(buy/sell) July futures at。 Was the basis stronger, weaker, or the same as expected?What is the realized price for the producer?Method 1:。 Method 2:。 The hedge resulted in a realized price of

To analyze the hedge situation:October 15th:The producer plans to sell wheat in early July.Current…

Answered: Question 3 (6.5 points): Hedge October…

Principles of Macroeconomics (MindTap Course List)

7th Edition

ISBN:9781285165912

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: The Basic Tools Of Finance

Section: Chapter Questions

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On March 1, you contract to take delivery of 1 ounce of gold for $415. The agreement is good for any day up to April 1. Throughout March, the price of gold hit a low of $385 and hit a high of $435. The price settled on March 31 at $420, and on April 1st you settle your futures agreement at that price. Your net cash flow is: A. -$30. B. -$20. C. -$15. D. $5. E. $20.
Question 6 (6 points): Hedge March 15th: A packer needs to buy Live Cattle in early June. Currently the June Live Cattle (LC) futures are trading at $175.650/cwt. The expected basis is $1.50/cwt. • Does the packer have a long or short cash position?. • Does the packer have a long or short futures position? (buy/sell) June LC futures at • • To hedge: The packer will $175.650/cwt. What is the expected price? June 10th. • The packer must. (buy/sell) cattle locally in the cash market at • $185.025/cwt. To offset their future position, they must $183.00/cwt. What is the actual basis? What is the realized price for the producer? o Method 1: o Method 2: ○ The hedge resulted in a realized price of (buy/sell) June futures at
Question 4 (6 points): Hedge January 20th: Miller needs to buy wheat in late April. Currently, the May wheat futures are trading at $6.67. The expected basis is -$0.30. • Does the miller have a long or short cash position? • Does the miller have a long or short futures position? ⚫ To hedge: The miller will April 30th What is the expected price?. • The miller must. (buy/sell) May wheat futures at $6.67/bu. (buy/sell) wheat locally in the cash market at $7.89/bu. • To offset their future position, they must $8.04/bu. • What is the actual basis?. • What is the realized price for the producer? 。 Method 1: о Method 2: о The hedge resulted in a realized price of (buy/sell) May futures at
6. Futures contract are settled daily and usually closed out prior to maturity.
8. Risk and return Suppose Caroline is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A BUDW C E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 3.50 7.50 11.50 15.50 19.50 Standard Deviation of Portfolio Return (Risk) (Percent) 0 5 10 Sell some of her stocks and place the proceeds in a savings account O Sell some of her bonds and use the proceeds to purchase stocks Accept more risk Sell some of her stocks and use the proceeds to purchase bonds 15 20 As the risk of Caroline's portfolio increases, the average annual return on her portfolio Suppose Caroline currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the…
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Question 5 (5.5 points): Hedge May 20th: Producer plans to sell corn in early November. Currently the December corn futures are trading at $4.33. The expected basis is -$0.36. • Does the producer have a long or short cash position? (buy/sell) Dec corn futures at $4.33/bu. Nov. 10th: To hedge: The producer will What is the expected price? • The producer must (buy/sell) corn locally in the cash market at • • $4.18/bu. To offset their future position, they must $4.67/bu. What is the actual basis? What is the realized price for the producer? ○ Method 1: Method 2: о The hedge resulted in a realized price of (buy/sell) Dec futures at
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43. On June 1, you win $1 million in a lottery and imme- diately acquire numerous "friends," one of whom offers you the deal of a lifetime. In return for the million, she'll pay you a cent today, two cents tomorrow, four cents the next day, eight cents the next, and so on, stopping with the last payment on June 21. (a) Assuming you take this deal, how much money will you receive on June 21? (b) Should you take the deal? Explain. (c) Would you take the deal if payments continued for the entire month of June?

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