Question

Suppose today is February 10, 2017, and your firm produces breakfast cereal and needs 145,000 bushels of corn in May 2017 for an upcoming promotion. You would like to lock in your costs today because you are concerned that corn prices might rise between now and May. Use Table 23.1 29 a. What total cost would you effectively be locking in based on the closing price of the day? (Do not round intermed iate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose corn prices are $3.69 per bushel in May. What is the profit or loss on your futures position? (Enter your answer as a positive number. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Skipped References Total cost а. b.

Answer 1

A)
Total Effective Locked Price on the Basis of Closing Price of the Day	Amount ( $)
Future Closing Price for May, 2017 for 100 Bushels of corn	377.25
Future Closing Price for May, 2017 for 1 Bushel of corn	3.7725
Future Closing Price for May, 2017 for 180000 Bushels of corn	3.7725*180,000
	679050
B)
Profit and Loss on future Position
Purchase Cost on future position of May,2017	3.7725
Actual Price for 1 bushel of corn in May, 2017	3.56
Loss on Future Contract for 1 bushel of corn	0.2125
Loss on Future Contract for 180000 bushels of corn	0.2125*180,000
	38250