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jag jag
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3 years ago
Schwabl's restaurant uses wheat to bake its kummelweck buns. It requires 50,000 bushels in 2 months on July 10th. The spot price of wheat is $1.0525 per bushel and the July futures contract is trading for a price of $1.068/bu. Each contract is for 5,000 bushels. Assume Schwabl's enters the appropriate position in July wheat futures contracts to hedge its price risk. On July 10th it buys its wheat in the spot market at $1.071/bu and closes out the futures position. Unfortunately, the wheat futures price had not achieved convergence on the day the position was closed-the futures price was $1.07 when Schwabl's closed its position. What was the cost per bushel of wheat? The purchase cost includes the cumulative profit from the futures transactions.

▸ $1.0525/bu

▸ $1.0690/bu

▸ $1.0700/bu

▸ $1.0710/bu
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Corporate Finance Online

Corporate Finance Online


Edition: 2nd
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Hnin P.Hnin P.
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3 years ago
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Anonymous
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#2
A year ago
Help! The answer is missing an explanation...
wrote...
#3
A year ago
Quote from: Anonymous (A year ago)
Help! The answer is missing an explanation...

Hi there,

I can't recall how to do this, since it has been many years since I wrote the answer. However, there is a similar example found in the document attached. Please let me know if it helps.
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#4
A month ago
Thanks
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