As of September 8th, the Jewelry Company intends to acquire 20,000 ounces of platinum sometime in November. The present December platinum futures price is $926.05 per ounce. The standard deviation of alterations in the futures price per ounce is 12.86, while the standard deviation of changes in the spot price per ounce is 14.38. The correlation coefficient between the spot and futures price changes is 0.85. Each future contract involves 50 ounces. i) Using the optimal hedge ratio, determine the number of contracts required for them to hedge their position. ii)Assuming that the spot price and the December future price on November 10th amount to $923.75 and $927.15, respectively, compute the effective price on November 10th based on your hedge strategy.

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Answer Hedging Jewelry Companys Platinum Purchase Data Planned purchase 20000 ounces of platinum Dec... View the full answer