Question: 2. Hedging Using Futures Consider a farmer who plans to sell 6,000 bushels of corns on dateT. The date-Tspot price of corn is normally distributed

2. Hedging Using Futures

Consider a farmer who plans to sell 6,000 bushels of corns on dateT. The date-Tspot price of corn is normally distributed with mean$500 per bushel and standard deviation$50 per bushel. To hedge the price risk, the farmer considers shorting corn futures with delivery on dateT. The futures price is$480 per bushel, and one contract is to deliver 5,000 bushels. In addition, the farmer can takeonly integernumber of contracts (i.e, a fraction of contract such as 0.1 is NOT allowed).

(a) How many contracts does the farmer need to take?

(b) What is the mean of the total revenue?

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