Highest profit or minimum loss between the two options

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Reference no: EM132036883

1. Corn-2-Pop decides to hedge 10,000 bushels of corn by purchasing put options with a strike price of $1.80. Six-month interest rates are 4.0% and the total premium on all puts is $1,200. If their total costs are $1.65 per bushel, what is their marginal change in profits if the spot price of corn drops from $1.80 to $1.75 by the time they sell their crop in 6 months?

A) $248 loss

B) $0

C) $252 gain

D) $1,500 loss

2. Two 6-month corn put options are available. The strike prices are $1.80 and $1.75 with premiums of $0.14 and $0.12, respectively. Total costs are $1.65 per bushel and 6-month interest rates are 4.0%. Corn-2-Pop wishes to hedge 20,000 bushels for 6 months. What is the highest profit or minimum loss between the two options if the spot price in 6 months is $1.70 per bushel?

A) $88 loss

B) $88 gain

C) $496 loss

D) $496 gain

Reference no: EM132036883

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