A 6-month forward contract for corn exists with a price of $1.70 per bushel. If Farmer Jayne decides to hedge her 20,000 bushels of corn with the forward contract, what is her profit or loss if spot prices are $1.65 or $1.80 when she sells her crop in 6 months? Her total costs are $33,000.

A) $1,000 gain or $1,000 loss

B) $0 gain or $3,000 gain

C) $0 loss or $3,000 loss

D) $1,000 gain or $1,000 gain

I know that the answer is (D) but do not understand the calculations. I come up with $1,000 gain when spot price is $1.65 and a $2,000 gain when spot price is $1.80.

Answer rating: 100% (QA)

Youre rightthe answer is Dand your calculations are almost correctLets break down the calculations t... View the full answer