You are the CEO of The World Finest Corn Flakes, which produces breakfast cereal. The current price
Question:
You are the CEO of The World Finest Corn Flakes, which produces breakfast cereal.
The current price of corn is $6.00 per bushel.
The company cost of storing corn for one month (including interest) is 20 cents per bushel.
There is a futures contract calling for a delivery of 5,000 bushels of corn, one month from today.
The current futures price is $5.70 per bushel.
You decide to buy 50,000 bushels of corn today and pay the interest and storage costs.
A. What can explain your decision?
B. Using the data above calculate the amount of money, per bushel, that you forego to own corn
today instead of waiting one month to own the corn. Assume that the futures price above is the
equilibrium futures price.
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon