you are cattle feeder concerned abount rising corn (and feed ) cost . the march contract is trading at $ 4.29/bu. during the month of january and february , you expect to be able to buy corn at basis of$ -0.28/bu. you buy the march contract the look in price corn . when the time comes to unwind your hedge, the following prices prevail : $4.94/bu march futures and $4.69/bu cash price. what price did you ectually pay for corn? (a) $4.69/bu (b)$ 4.01/bu (C)$ 4.94/bu (d)$ 4.16/bu

you are cattle feeder concerned abount rising corn (and feed ) cost . the march contract is trading at $ 4.29/bu. during the month of january and february , you expect to be able to buy corn at basis of$ -0.28/bu. you buy the march contract the look in price corn . when the time comes to unwind your hedge, the following prices prevail : $4.94/bu march futures and $4.69/bu cash price. what price did you ectually pay for corn? (a) $4.69/bu (b)$ 4.01/bu (C)$ 4.94/bu (d)$ 4.16/bu

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.10P

See similar textbooks

Similar questions

Suppose that Honda is on the verge of signing a 15-year contract with TRW to supply airbags. The terms of the contract include providing Honda with 85 percent of the airbags used in new automobiles. Just prior to signing the contract, a manager reads that one of TRW’s competitors has introduced a comparable airbag using a new technology that reduces the cost by 30 percent. How would this information affect Honda’s optimal contract length with TRW?
AIR, an airline company, used to deal only in derivatives of futures and swaps to hedge its jet fuel market risk. However, in the mid2003, AIR started trading in speculative derivative options and took a bullish view of the jet fuel market.The company predicted correctly but by the end of 2003, AIR revised its strategy to a bearish stance.The CEO signed contracts with several banks, buying put options and selling call options, but the prices soared above the strike priceof the call, and AIR faced a large deficit.1. Explain how AIR could have floored the losses through an adequate risk management procedureDespite mark to market losses of $30 million by mid 2004, the CEO increased AIR exposure.In addition, the trading was not disclosed in the financial statements, and AIR accounted for the options at intrinsic value, ignoringthe time value component.From March 2003, AIR started trading options on its own account.AIR was unable to meet some of the margin calls, resulting in the company…
1. When the price of the underlying financial instrument exceeds the exercise [strike] price of a call option, the option is said to be: *a. ripe for a put.b. out of the running.c. in the money.d. dead on the money. 2. An option that gives the holder the right to sell a stock at a specified price at some time in the future is called a (n) *a. Put optionb. Covered optionc. Out of the money optiond. Call option 3. When a company proposes to issue its shares to its existing shareholders, it is called a (n) *a. Rights issueb. Initial public offeringc. Private placementd. Secondary issuance
Consider the following bargaining problem: Two siblings Naa and Nii have to have Gh20 million they inherited from their parents between them. Naa gets to make an initial offer. Nii then gets to respond by either accepting Naa's initial offer or offering a counter offer. Finally, Naa can respond by either accepting Nii's offer or making a final offer. If Nii does not accept Naa's final offer both Nii and Naa get nothing. Nii discounts the future at 10% (i.e., future earnings are with 10% less than current earnings) while Naa discounts the future at 20%. Calculate the Nash equilibrium of this bargaining problem.
A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.
The information contained in the table below shows the expected return and standard deviation for the market and Treasury Bills. Market Data Rate of Return Standard Deviation Treasury Bills 4.25% 0.00% S&P 500 12.00% 21.00% Required: Using the information in the table above and the varying risk aversions below, please calculate allocations to the risky and risk-free assets. (Use cells A5 to C6 from the given information to complete this question.) Risk Aversion Percent Allocated to the Market (S&P 500) Percent Allocated to Treasury Bills 4.00 2.00 1.50
Assume you are an option buyer . Strike price is $ and option premium is $3 . You will pay $ 44 when you exercise the option Select one: True False
Assume you are a soybean producer wanting to establish a selling price range. You purchase a $10.00 put for 11 cents and sell a $11.00 call for 12 cents. The expected basis is 25 cents under Nov Soybean futures. What is your anticipated selling price range? Find the floor price and ceiling price.
Consider an investor based in the FC that invests in the DC. To hedge the FX risk the FC investor could (select all that are true): A. Engage in a swap for DC at the investment's open date to FC at the invesment's close date B. Engage in a forward DC to FC with an unnknown counter party and no escrow (margin) C. Write a call option FC to DC at today's spot FX rate D. Write a put option FC to DC at today's spot FX E. Exercise a futures contract DC to FC at the date of the investment return trip F. Purchase a futrues contract FC to DC for the return trip Detailed Explanation Please, Thank you!
A buyer or seller must consider a number of risks when evaluating whether a long-term contract is necessary or even desirable. Three primary questions must be asked when developing a long-term contract and considering the risks: What is the potential for opportunism? In other words, how likely is the supplier to take advantage of the purchaser (or vice versa)? Is this the right supplier to engage in a long-term contract? C.Is there a fair distribution of risk and gains between the parties involved?
- Could you give further explanation in the meaning of "Min(X-S,0)" in Profit from Call Option equation & "Max(X-S,0)" in Profit from Put Option equation above for who has little basic concept of option and stock? - What's make investor decide to short option because I see that short position has more chance to loss the money, what's occur before between open long status and short status in the same strike price? - What's called spot price? $42 or $43
You are in the market for a new refrigerator for your company's lounge, and you have narrowed the search down to two models. The energy-efficient model sells for $700 and will save you $45 at the end of each of the next five years in electricity costs. The standard model has features similar to the energy-efficient model but provides no future saving in electricity costs. It is priced at only $500. Assuming your opportunity cost of funds is 6 percent, which refrigerator should you purchase?