Question 4 (6 points): HedgeJanuary 20th: Miller needs to buy wheat in late April. Currently, the May wheat futures aretrading at $6.67. The expected basis is -$0.30.• Does the miller have a long or short cash position?• Does the miller have a long or short futures position?⚫ To hedge: The miller willApril 30thWhat is the expected price?.• The miller must.(buy/sell) May wheat futures at $6.67/bu.(buy/sell) wheat locally in the cash market at $7.89/bu.•To offset their future position, they must$8.04/bu.• What is the actual basis?.•What is the realized price for the producer?。 Method 1:оMethod 2:оThe hedge resulted in a realized price of(buy/sell) May futures at

Let's go through the detailed workings for each step in the hedge to better understand the…

Answered: Question 4 (6 points): Hedge January…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section: Chapter Questions

Problem 5CQQ

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Question 6 (6 points): Hedge March 15th: A packer needs to buy Live Cattle in early June. Currently the June Live Cattle (LC) futures are trading at $175.650/cwt. The expected basis is $1.50/cwt. • Does the packer have a long or short cash position?. • Does the packer have a long or short futures position? (buy/sell) June LC futures at • • To hedge: The packer will $175.650/cwt. What is the expected price? June 10th. • The packer must. (buy/sell) cattle locally in the cash market at • $185.025/cwt. To offset their future position, they must $183.00/cwt. What is the actual basis? What is the realized price for the producer? o Method 1: o Method 2: ○ The hedge resulted in a realized price of (buy/sell) June futures at
6. Futures contract are settled daily and usually closed out prior to maturity.
On March 1, you contract to take delivery of 1 ounce of gold for $415. The agreement is good for any day up to April 1. Throughout March, the price of gold hit a low of $385 and hit a high of $435. The price settled on March 31 at $420, and on April 1st you settle your futures agreement at that price. Your net cash flow is: A. -$30. B. -$20. C. -$15. D. $5. E. $20.
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**Practice** I have been trying to practcie this question but I always seem to get it wrong What is the expected final wealth of each agent? Pay attention to the names in each option!A. Anna’s expected final wealth is 1440 and Bob’s expected final wealth is 980B. Anna’s expected final wealth is 1020 and Bob’s expected final wealth is 1380C. Anna’s expected final wealth is 1460 and Bob’s expected final wealth is 1105D. Anna’s expected final wealth is 1140 and Bob’s expected final wealth is 1200E. None of the options above
When you are long an option and you delta hedge, you want A. traders talking a lot about other asset classes and ignore your underlying B. volatility to increase and the underlying to move around a lot C. the cost of carry to narrow D. volatility to decrease and the underlying to just stop moving

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