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# Schwabl's restaurant uses wheat to bake its kummelweck buns. It requires 50,000 bushels in 2 months ...

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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

Edition: 2nd
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Hnin P.Hnin P.
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