3,On September 26, the spot price of wheat was $3.5225 per bushel and the price of a December wheat futures was $3.64 per bushel. The interest forgone on money tied up in a bushel until expiration is 0.03, and the cost of storing the wheat is 0.0875 per bushel. The risk premium is 0.035 per bushel. a. What is the expected price of wheat on the spot market in December? b. Show how the futures price is related to the spot price. c. Show how the expected spot price at expiration, your answer in part a, is related to the futures price today.

3,On September 26, the spot price of wheat was $3.5225 per bushel and the price of a December wheat futures was $3.64 per bushel. The interest forgone on money tied up in a bushel until expiration is 0.03, and the cost of storing the wheat is 0.0875 per bushel. The risk premium is 0.035 per bushel. a. What is the expected price of wheat on the spot market in December? b. Show how the futures price is related to the spot price. c. Show how the expected spot price at expiration, your answer in part a, is related to the futures price today.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume that the price of December 2021 corn futures is $4.65/bushel in February and $4.50 in October. If spot cash price in October is $4.55, what is the farmer's total revenue? Assume he entered into 20 contracts. Each corn contract is 5000 bushels.
A farmer sells futures contracts at a price of $6.70 per bushel on 10,000 bushels of corn. The spot price of corn is $6.55 at contract expiration. What is the farmer's profit on the futures contracts?
The futures price of a commodity such as wheat is $2.50 a bushel. Futures contracts are for 10,000 bushels, and the margin requirement is $2,500 a contract. The maintenance market requirement is $1,000. A speculator expects the price of the commodity to rise and enters into a contract to buy wheat. a. How much must the speculator initially remit? b. If the futures price rises to $2.60, what is the profit and return on the position? c. If the futures price declines to $2.47, what is the loss on the position?
The futures price of a commodity such as wheat is $2.50 a bushel. Futures contracts are for 10,000 bushels, and the margin requirement is $2,500 a contract. The maintenance market requirement is $1,000. A speculator expects the price of the commodity to rise and enters into a contract to buy wheat. d. If the futures price rises to $2.70, what must the speculator do? e. If the futures price continues to decline to $2.32, how much does the speculatorhave in the account?
The price of the July corn futures is $4.13, and the September corn futures are 10 cents higher. A trader thinks that the spread between July and September will contract.a. How would the trader use a spread order to bet on your view?b. Did the trader buy or sell the spread?c. How much money would you make if the price of July corn futures increases to $5.00 and the September contract drops to $4.50. Assume the spread trade was for 5000 bushels of corn.
A farmer sells futures contracts at a price of $3.65 per bushel. The spot price of corn is $3.15 at contract expiration. The farmer harvested 21000 bushels of corn and sold futures contracts on 20000 bushels of corn. What are the farmer's proceeds from the sale of ALL the corn? Group of answer choices 73,911 81,040 76,150 68,372 84,711
The standard deviation of monthly changes in the spot price of live cattle is (in cents perpound) 1.2. The standard deviation of monthly changes in the futures price of live cattle forthe closest contract is 1.4. The correlation between the futures price changes and the spotprice changes is 0.7. It is now October 15. A beef producer is committed to purchasing200,000 pounds of live cattle on November 15. The producer wants to use the December livecattle futures contracts to hedge its risk. Each contract is for the delivery of 40,000 pounds ofcattle. What strategy should the beef producer follow?
Suppose that the 3-month futures price of corn is £2.00 (£2 per bushel). The cost-of-carry for this contract is 10%. Under the theory of cost of carry, what is the value of a 6-month futures corn contract?
The standard deviation of monthly changes in the spot price of live cattle is (in cents per pound) 1.5. The standard deviation of monthly changes in the futures price of live cattle for the closest contract is 2. The correlation between the futures price changes and the spot price changes is 0.5. It is now October 15. A beef producer is committed to purchasing 500000 pounds of live cattle on November 15. The producer wants to use the December live-cattle futures contracts to hedge its risk. Each contract is for the delivery of 40000 pounds of cattle. What strategy should the beef producer follow?
This is a follow up question so I copied/pasted the same question below for your convenience: An investor enters into a long futures position to buy 5,000 bushels of wheat for 575 cents per bushel. The initial margin is $5,000 and the maintenance margin is $2,500. c. Starting from the original position, the investor would have to see a price movement of _____ cents (above/below) ______ 575 cents in order to withdraw $2,000 from the margin account. So Initial Margin = $5,000;Maintenance Margin = $2,500;Withdraw Amount = $2,000;Original Price per Bushel = 575 cents or $5.75;Number of Bushels = 5,0001. How did you come up with the calculation? You wrote that: (new_price * 5000)/(5.75 * 5000) = withdraw amount/mainenance margin 2. Could you please explain the right side (i.e., why the ratio is withdraw amount to mainenance margin)?
Given the following information for December 24 corn futures, identify the "In the Money", "At The Money", and "Out of the Money" 22 puts and Calls. The December 24 futures price is $4.71. Also, calculate the intrinsic and extrinsic values of the premiums. 24 25 26 27 28 29 30 31 32 33 34 35 36 37 \table[[Strike,Premium],[Prices,Puts,Monies],[5.2,0.655,Out],[5.1,0.583,In],[5,0.513,At],[4.9,0.447,Out],[4.8,0.386,],[4.7,0.33,],[4.6,0.276,],[4.5,0.227,],[4.4,0.185,],[4.3,0.147,]] \table[[Puts,,],[Intrinsic,Extrinsic,Calls],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,],[,,,]]
Assume you buy a September corn put option with a strike price of $2.70 at a premium cost of 8 cents a bushel. Also, assume your local basis is expected to be 10 cents under September futures in August. What would your selling price be if the September futures price at expiration is 3.00? 2.92 2.82 2.98 3.28 2.52

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