1. Home Builders Inc. wants to lock in the price of lumber for a large housing...

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1. Home Builders Inc. wants to lock in the price of lumber for a large housing project and expects to need 20,000 cubic meters of wood the fall. September lumber futures are trading at $299 per cubic meter and each futures contract represents 260 cubic meters of lumber. Set up the hedge and show the profit loss analysis. Current lumber prices are $280 per cubic meter. In the fall, when the building company will need the wood, it turns out that the price of lumber will be $250. Was it a good idea for Home Builders to hedge its needs? Falls Lumber Company hedged an equivalent amount of lumber to protect against a price decline. 1. Home Builders Inc. wants to lock in the price of lumber for a large housing project and expects to need 20,000 cubic meters of wood the fall. September lumber futures are trading at $299 per cubic meter and each futures contract represents 260 cubic meters of lumber. Set up the hedge and show the profit loss analysis. Current lumber prices are $280 per cubic meter. In the fall, when the building company will need the wood, it turns out that the price of lumber will be $250. Was it a good idea for Home Builders to hedge its needs? Falls Lumber Company hedged an equivalent amount of lumber to protect against a price decline.

Answer rating: 100% (QA)

To hedge the price of lumber Home Builders Inc can enter into a futures contract to purchase 77 futures contracts 20000 cubic meters needed 260 cubic ... View the full answer