Top Posters
Since Sunday
5
k
4
c
4
4
M
3
t
3
i
3
B
3
k
3
m
3
c
3
o
3
Home Q & A Board Other Fields Homework Help Business Finance
New Topic  
johnja johnja
wrote...
Go to Answer
Posts: 118
Rep: 0 0
3 years ago
To hedge the price risk associated with one of its major inputs, Binford Homes uses lumber futures contracts which trade on the Chicago Mercantile Exchange (CME). The CME Random Length Lumber futures contract calls for delivery of 110,000 board feet (110 MBF, 1 MBF is 1,000 board feet of lumber) of random length 8-foot to 20-foot pieces. Primarily, the deliverable species is Western Spruce-Pine-Fir.

In October of last year, Binford Homes bought 100 CME lumber contracts for March delivery at a price of $300 per MBF. It is now March 16th and Binford buys lumber in the spot market, where it trades for $263 per MBF, and executes an offset trade in the futures market. Today's futures prices are quoted in the table below.

Expiry MonthSettlement PriceVOLOpen Interest
March262.509004000
May278.70146416
July283.00226
What is your total purchase cost for the 110 MBF of lumber? The total purchase cost includes profits from the futures transactions.

▸ $300.50 per MBF

▸ $300.00 per MBF

▸ $262.50 per MBF

▸ $263.00 per MBF
Textbook 
Corporate Finance Online

Corporate Finance Online


Edition: 2nd
Authors:
Read 41 times
1 Reply
Replies
Answer verified by a subject expert
yenyen
wrote...
#1
Posts: 79
Rep: 1 0
3 years ago
Sign in or Sign up in seconds to unlock everything for free
More solutions for this book are available here
1

Related Topics

johnja Author
wrote...

3 years ago
Thanks
dri
wrote...

Yesterday
Good timing, thanks!
sakoon
wrote...

2 hours ago
I appreciate what you did here, answered it right Smiling Face with Open Mouth
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  985 People Browsing
Start New Topic Take the Tour CoursesNew Study Tools Topics Trending Browse by Textbook
Live Chat
Related Images
  
 1131
  
 307
  
 617
Your Opinion
What's your favorite funny biology word?
Votes: 336
Previous poll results: What's your favorite math subject?