Suppose today is December 4, 2020, and your firmproduces breakfast cereal and needs 135,000 bushelsof corn in March 2021 for an upcoming promotion. Youwould like to lock in your costs today because you areconcerned that corn prices might go up between nowand March. Use Table 25.2 a. What is the total priceyou are locking in for the 135,000 bushels of cornbased on the day's closing price? (Do not roundintermediate calculations and round your answer to thenearest whole number, e.g., 32.) b. Suppose cornprices are $4.71 per bushel in March. What is the profitor loss on your futures position? (Enter your answer as apositive value. Do not round intermediate calculationsand round your answer to the nearest whole number, e.g., 32.)

a. We need to know the precise closing price of the corn futures contract for delivery in March 2021…

Answered: Suppose today is December 4, 2020, and…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter21: Risk Management

Section: Chapter Questions

Problem 4P

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Consumer prices rose 1.0% in May 2022 and 1.3% in June 2022. One of your relatives made the claim that consumer prices rose more than 2.3% over the two-month period covered by May and June. Is this person correct or not? If your relative is correct, justify this claim with calculations, explaining why you're making the calculations you are and showing how much prices actually rose over the two month period as a percentage. If your relative is incorrect, explain their error, using calculations and explanation to back up your claim.
You are the buyer for a cereal company and you must buy 80,000 bushels of corn next month. The futures contracts on corn are based on 5,000 bushels and are currently quoted at 415′0 cents per bushel for delivery next month. If you want to hedge your cost, you should _____ contracts at a cost of _____ per contract.
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