A farmer is currently growing wheat and plans to sell it in September next year. He needs to plan his budget now, because of upcoming expenses. Suppose that the futures price of wheat for September delivery is £100 per ton. There is 50% probability that the spot price of wheat in September will be £90 per ton or £110 per ton. a) Suppose that the farmer is certain that he will need to sell 2 tons of wheat in September. Explain how the farmer could lock in today his future revenue.
A farmer is currently growing wheat and plans to sell it in September next year. He needs to plan his budget now, because of upcoming expenses. Suppose that the futures price of wheat for September delivery is £100 per ton. There is 50% probability that the spot price of wheat in September will be £90 per ton or £110 per ton. a) Suppose that the farmer is certain that he will need to sell 2 tons of wheat in September. Explain how the farmer could lock in today his future revenue.
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter2: Using Financial Statements And Budgets
Section: Chapter Questions
Problem 6FPE
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A farmer is currently growing wheat and plans to sell it in September next year. He needs to plan his budget now, because of upcoming expenses. Suppose that the futures price of wheat for September delivery is £100 per ton. There is 50% probability that the spot price of wheat in September will be £90 per ton or £110 per ton.
a) Suppose that the farmer is certain that he will need to sell 2 tons of wheat in September. Explain how the farmer could lock in today his future revenue.
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