Derivative markets problem

Assignment Help Financial Management

Reference no: EM131545217

Derivative Markets Problem

Two 6-month corn put options are available. The strike prices are 1.70 and 1.75 with premiums of 0.15 and 0.19, respectively. Total costs are 1.70 per bushel and 6-month interest rates are 4%.

Farmer Bob wishes to hedge 22,000 bushels for 6 months. What is the highest profit or minimum loss by using one of these two options if the spot price in 6 months is 1.50 per bushel?

a) 2,933 gain

b) 4,766 gain

c) 2,698 gain

d) 4,754 gain

e) -3,247 loss

need explanation

Reference no: EM131545217

Questions Cloud

Considering new three-year expansion project : Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.43 million.

What is projected net income : Prepare a pro forma income statement assuming a tax rate of 34 percent. What is the projected net income?

What is risk-free rate : A non-dividend-paying stock has a current share price of $42.60 and a futures price of $42.95. what is the risk-free rate?

Overall cost of debt is the weighted average : Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues.

Derivative markets problem : What is the highest profit or minimum loss by using one of these two options if the spot price in 6 months is 1.50 per bushel?

Rate of return you expect to earn from buying the shares : what is the rate of return you expect to earn from buying the shares?

What was the cash coverage ratio for the year : The firm paid $3,916 in total interest expense and deducted $2,595 in depreciation expense. What was the cash coverage ratio for the year?

What is maximum price per share schultz : Schultz Industries is considering the purchase of Arras Manufacturing. What is the maximum price per share Schultz should pay for Arras?

Bonds outstanding with six months left to maturity : Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity.

User Account

All Pages