Multiple Choice
A manufacturer of breakfast cereal is concerned about corn prices.The firm anticipates needing 1 million bushels of corn in one month.The current price of corn is $6.50 per bushel and the futures price for delivery in one month is $7.00 per bushel.The cost to store the corn for 1 month is $100,000.What should the firm do?
A) Hedge with futures for a total cost of $7,000,000.
B) Hedge with futures for a total cost of $6,900,000.
C) Buy the corn now and store for 1 month,for a total cost of $6,500,000.
D) Buy the corn now and store for 1 month,for a total cost of $6,600,000.
E) Wait one month and buy the corn at the market price in one month.
Correct Answer:
Verified
Correct Answer:
Verified
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