Derivatives & Structured Products -

Case: Input Capital: Customized Financing for Canola Producers

1. Develop a flow chart diagram to explain the nature of Capital Stream

Proposal transaction between Input Capital and the Sustainable Farms Inc.

2. Identify the Risk and Benefits to both parties based on the above flow chart diagram.

3. Explain, Identify and develop a generic equation for the "Price Upside Participation Feature" of the Capital Stream Contract.

4. S0 or St can be replaced by F0 or Ft(Futures Prices) for the appropriate date, given in Exhibit 3 since no centralized spot market exist for Canola.

5. Calculate the mark to market value of Forward contracts a. Assume the appropriate forward price as St at the maturity date of the contract. b. Calculate its Present value today

6. Calculate the Value of the two financial Options involved in Price Upside Participation Feature using BSM model and assuming following

a. Volatility can be obtained from Exhibit 2 (Excel Data is also available). For the calculation of volatility, please calculate returns on continuously compounded bases Rt=ln(Ft/ Ft-1). Don't forget to annualize the volatility.

b. Calculate values of two options assuming option strike price as given in the case.

7. Calculate the overall value of the Portfolio held by Input Capital

8. Calculate the Cash flows and IRR based on Forwards based transactions only

9. Calculate the cash flows and IRR based on Forward and Options based transactions.