User Account

All Pages

Derivatives markets-what is the floor in her strategy

Assignment Help Financial Management
Reference no: EM131045137

Derivatives Markets:

To plant and harvest 20,000 bushels of corn, Farmer incurs fixed and variable costs totaling $33,000 at the time of the harvest. The current spot price of corn is $1.80 per bushel and the six-month interest rate is 4.0%. Farmer will harvest and sell her corn in 6 months. Farmer has the opportunity to hedge all 20,000 bushels using put options with strike price $1.80 for a total cost of $2,400

a) Farmer bought $1.70 strike put options for $0.11 and sold $1.75 strike call option for a premium of $0.14. What is the floor in her strategy?

b) A $1.75 strike call option has a $0.14 premium and the $1.75 strike put option premium is $0.12. What is the net cost for Farmer to create a synthetic short forward contract?

Reference no: EM131045137

Questions Cloud

Describe how you would implement this algorithm : Derive the Newton-Raphson algorithm for maximizing the multinomial log-likelihood, and describe how you would implement this algorithm.
Farthing engaged in the following transactions : Farthing is a director and vice president of Garp, Inc., whose common stock is listed on the New York Stock Exchange. Farthing engaged in the following transactions in the same calendar year: on January 1, Farthing sold five hundred shares at $30 ..
Minimum-maximum credit-refundable or non-refundable credits : Discuss the underlying rationale for one of the following tax credit items. Explain any restriction on claiming the credits such as AGI limitations, minimum and maximum credit, refundable or non-refundable credits etc. Please do not duplicate your pe..
Probability that the sum of the two tosses : 1. What is the probability that you get an even number at the first toss? (Show work and write the answer in simplest fraction form) 2. What is the probability that the sum of the two tosses is at least 7, given that you get an even number in the f..
Derivatives markets-what is the floor in her strategy : To plant and harvest 20,000 bushels of corn, Farmer incurs fixed and variable costs totaling $33,000 at the time of the harvest. The current spot price of corn is $1.80 per bushel and the six-month interest rate is 4.0%. Farmer bought $1.70 strike pu..
What roles and functions do you perform in your job : What is the most difficult part of the job? How has your job affected you as a person (positives/negatives)? P What advice would you give to a person just starting ouiin his/her career as a social worker?
Corporations voted to approve the merger : The boards of directors of DuMont Corp. and Epsot, Inc., agreed to enter into a friendly merger, with DuMont to be the surviving entity. The stock of both corporations was listed on a national stock exchange. In connection with the merger, both co..
Describe approach you would take in performance feedback : Describe the approach you would take in your performance feedback session with James. What would you say, in what sequence would you say it, and what information would you reference to back up what you are saying?
About the derivatives markets : To plant and harvest 20,000 bushels of corn, Farmer incurs fixed and variable costs totaling $33,000 at the time of the harvest. The current spot price of corn is $1.80 per bushel and the six-month interest rate is 4.0%. If Farmer decides to hedge, w..

Reviews

Write a Review

Financial Management Questions & Answers

  Find the component costs for bonds and preferred stock

There are 2,000 bonds outstanding at a market price of $1090 per bond. The bonds mature in 17 years and have a coupon payment of $70 on the $1,000 face value of the bond.  Find the 3 weights to be used to determine the cost of capital (Debt, Preferre..

  Compute the no-arbitrage price of a treasury note

Suppose an investor would like to buy 200 Treasury notes. The investor wants notes with an annual coupon rate of 7%, a 3-year maturity, and semi-annual coupon payments. Assume each Treasury note has a par value of $1,000. Assuming the yield curve is ..

  Difference in benefits required and miscellaneous benefits

Employee benefits have become very important to many employees. When benefits are cut, employees can become disgruntled and feel cheated. Many employees do not realize or understand the difference between the benefits required and miscellaneous benef..

  General matters outstanding bond issue has coupon rate

General Matter’s outstanding bond issue has a coupon rate of 10.8%, and it sells at a yield to maturity of 8.75%. The firm wishes to issue additional bonds to the public at face value. What coupon rate must the new bonds offer in order to sell at fac..

  What is the market value oft he firm after the recap

All equity business has 100 million shares outstanding selling for $20 a share. Management believes interest rates are unreasonably low and decides to execute a leverages recapitalization. It will raise $1 billion in debt and repurchase 50 million sh..

  Dividends are expected to grow at constant rate

The Starr Co. just paid a dividend of $1.60 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 10 percent on the stock. What is the current price?

  Determine the equivalent equal monthly payment series

Suppose that you barrow $17,000 at 15% compounded monthly over four years. Knowing that the 15% represents the market interest rate, you realize that the monthly payment in actual dollars will be $473.12. If the average monthly general inflation rate..

  Ignore any tax loss carry back or carry forward provisions

During the year, Belyk Paving Co. had sales of $2,392,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,433,000, $435,800, and $490,800, respectively. In addition, the company had an interest expense of $2..

  What would the bond equivalent yield

You have a U.S. Treasury bill with 112 days to maturity quoted at a discount yield of 3.82 percent. Assume a $1 million face value. What would the bond equivalent yield?

  Company funds premiums on policies through bonuses

David owns 75 percent of the stock of Smith Industries, which is operated as an S corporation. Walter owns the remaining 25 percent. - David is the driving force behind the company. It is doubtful the company could survive without David. The company ..

  What is counts unlevered beta

Counts Accounting has a beta of 1.20. The tax rate is 40%, and Counts is financed with 45% debt. What is Counts' unlevered beta? Round your answer to two decimal places.

  Firm issues two tranches of bonds

Let’s suppose that a firm issues two tranches (“series”) of bonds, in addition to preferred stock and retained earnings. It has so much retained earnings that it does not have to issue new equity. However, the two different tranches have different fl..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd