Write down the formula for calculating the optimal number of futures contracts (NFC*) using the econometric (optimal) hedge ratio (HR*). Using data in the spreadsheet, calculate the optimal number of futures contracts (NFC*) needed to hedge the cattle on feed

A B D E F G H 1 Calculating Hedge Ratio from Cash and Futures Prices 2 3 ACP AFP ACP/AFP CP 61.40 64.17 64.99 63.49 60.32 59.03 58.05 FP 68.98 69.32 67.88 65.11 62.80 60.12 60.31 Basis -7.59 -5.15 -2.90 -1.63 -2.48 -1.09 -2.26 2.77 0.82 -1.50 -3.17 -1.29 -0.98 0.34 -1.44 -2.77 -2.31 -2.68 0.19 8.25 -0.57 0.54 1.37 0.48 -5.27 61.63 64.93 -0.56 0.80 4 March 5 April 6 May 7 June 8 July 9 Aug 10 Sep 11 12 Mean 13 Variance 14 Std. Dev. 15 Covariance 16 Corr. Coeff. 17 18 HE 19 HR (Nave) 20 HR (Regression) 21 7.08 5.23 4.28 2.07 2.66 15.58 3.95 7.47 0.83 -1.45 1.97 1.40 1.61 0.67 0.26 0.80 0.98 A B D E F G H 1 Calculating Hedge Ratio from Cash and Futures Prices 2 3 ACP AFP ACP/AFP CP 61.40 64.17 64.99 63.49 60.32 59.03 58.05 FP 68.98 69.32 67.88 65.11 62.80 60.12 60.31 Basis -7.59 -5.15 -2.90 -1.63 -2.48 -1.09 -2.26 2.77 0.82 -1.50 -3.17 -1.29 -0.98 0.34 -1.44 -2.77 -2.31 -2.68 0.19 8.25 -0.57 0.54 1.37 0.48 -5.27 61.63 64.93 -0.56 0.80 4 March 5 April 6 May 7 June 8 July 9 Aug 10 Sep 11 12 Mean 13 Variance 14 Std. Dev. 15 Covariance 16 Corr. Coeff. 17 18 HE 19 HR (Nave) 20 HR (Regression) 21 7.08 5.23 4.28 2.07 2.66 15.58 3.95 7.47 0.83 -1.45 1.97 1.40 1.61 0.67 0.26 0.80 0.98