You are working for a home builder, and want to hedge against increases in lumber prices....

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You are working for a home builder, and want to hedge against increases in lumber prices. You estimate that you will need 2,687,500 board feet of 2"x4"x84" stud lumber to complete their tract. Doing some research, you find that contract specs for the closest commodity is for Random Length Lumber: CONTRACT UNIT QUOTE UNITS TIC SIZE RL Lumber 110,000 bd ft $/1K bd ft $0.10/bd ft- $11 MOS. Jan, Mar, May, Jul, Sep, Nov INITIAL MGN $2,475 MAINT MGN $2,225 Further research has shown that the correlation between spot 2 X 4 lumber and Random Length Lumber is .9275. Meanwhile, the variance of price for 2 X 4 lumber is only .246, while the variance of random length lumber is .378. Given this information, what is the hedge ratio? (Round to the nearest thousandth). You are working for a home builder, and want to hedge against increases in lumber prices. You estimate that you will need 2,687,500 board feet of 2"x4"x84" stud lumber to complete their tract. Doing some research, you find that contract specs for the closest commodity is for Random Length Lumber: CONTRACT UNIT QUOTE UNITS TIC SIZE RL Lumber 110,000 bd ft $/1K bd ft $0.10/bd ft- $11 MOS. Jan, Mar, May, Jul, Sep, Nov INITIAL MGN $2,475 MAINT MGN $2,225 Further research has shown that the correlation between spot 2 X 4 lumber and Random Length Lumber is .9275. Meanwhile, the variance of price for 2 X 4 lumber is only .246, while the variance of random length lumber is .378. Given this information, what is the hedge ratio? (Round to the nearest thousandth). You are working for a home builder, and want to hedge against increases in lumber prices. You estimate that you will need 2,687,500 board feet of 2"x4"x84" stud lumber to complete their tract. Doing some research, you find that contract specs for the closest commodity is for Random Length Lumber: CONTRACT UNIT QUOTE UNITS TIC SIZE RL Lumber 110,000 bd ft $/1K bd ft $0.10/bd ft- $11 MOS. Jan, Mar, May, Jul, Sep, Nov INITIAL MGN $2,475 MAINT MGN $2,225 Further research has shown that the correlation between spot 2 X 4 lumber and Random Length Lumber is .9275. Meanwhile, the variance of price for 2 X 4 lumber is only .246, while the variance of random length lumber is .378. Given this information, what is the hedge ratio? (Round to the nearest thousandth). You are working for a home builder, and want to hedge against increases in lumber prices. You estimate that you will need 2,687,500 board feet of 2"x4"x84" stud lumber to complete their tract. Doing some research, you find that contract specs for the closest commodity is for Random Length Lumber: CONTRACT UNIT QUOTE UNITS TIC SIZE RL Lumber 110,000 bd ft $/1K bd ft $0.10/bd ft- $11 MOS. Jan, Mar, May, Jul, Sep, Nov INITIAL MGN $2,475 MAINT MGN $2,225 Further research has shown that the correlation between spot 2 X 4 lumber and Random Length Lumber is .9275. Meanwhile, the variance of price for 2 X 4 lumber is only .246, while the variance of random length lumber is .378. Given this information, what is the hedge ratio? (Round to the nearest thousandth).

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To calculate the hedge ratio we need to determine how many Random Length Lumber contracts are needed ... View the full answer