Multiple Choice
Hershey's Chocolate is concerned about cocoa prices prior to building inventory for Halloween sales.Analysts project that price per ton could vary from $1,250 to $1,500.A September call option can be purchased with a $1,300 strike price for a premium of $145.What is Hershey's worst-case scenario if it purchases these options?
A) Cocoa prices will rise to $1,500 and Hershey is protected only to a price of $1,300.
B) Cocoa prices will decline to $1,250 and Hershey must pay an extra $50 per ton.
C) Cocoa prices will not rise above Hershey's break-even price of $1,445, which equals the sum of the strike price plus the option premium.
D) Cocoa prices will remain below $1,300 and Hershey will lose $145 per option contract.
Correct Answer:
Verified
Correct Answer:
Verified
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