Assume it is now December 2020 and the current spot price for wheat is $1.90 per...

  

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Assume it is now December 2020 and the current spot price for wheat is $1.90 per bushel. Suppose Silver Stone Farms (SSF) expects to harvest 50,000 bushels of wheat in September 2021. SSF is concerned about the possibility of price fluctuations between now and September. The futures price for September wheat is $7 per bushel, and the relevant contract calls for 5,000 bushels. a) (2 marks) What action should SSF take to lock in the $2 price? b) (1 mark) Suppose the price of wheat actually turns out to be $3. Evaluate SSF's gains and losses. c) (1 mark) Suppose the price of wheat actually turns out to be $1. Evaluate SSF's gains and losses. d) (3 marks) Suppose that September futures put options with a strike price of $2 per bushel cost S0.15 per bushel. Assuming the SSF hedges using put options, evaluate its gains and losses for wheat prices of $1, $2, and $3. Assume it is now December 2020 and the current spot price for wheat is $1.90 per bushel. Suppose Silver Stone Farms (SSF) expects to harvest 50,000 bushels of wheat in September 2021. SSF is concerned about the possibility of price fluctuations between now and September. The futures price for September wheat is $7 per bushel, and the relevant contract calls for 5,000 bushels. a) (2 marks) What action should SSF take to lock in the $2 price? b) (1 mark) Suppose the price of wheat actually turns out to be $3. Evaluate SSF's gains and losses. c) (1 mark) Suppose the price of wheat actually turns out to be $1. Evaluate SSF's gains and losses. d) (3 marks) Suppose that September futures put options with a strike price of $2 per bushel cost S0.15 per bushel. Assuming the SSF hedges using put options, evaluate its gains and losses for wheat prices of $1, $2, and $3.

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