Question

# Six months from now, Farmer Larry will harvest 25,000 bushels of corn. In doing so, he...

Six months from now, Farmer Larry will harvest 25,000 bushels of corn. In doing so, he incurs costs of \$111,000. The current spot price of corn is \$4.90 per bushel, and the six-month forward price is \$5.05. Suppose Larry decides to sell corn forward. What total profit would he earn if the market price of corn at harvest time is \$4.30, \$4.70, \$5.10, and \$5.50, respectively?

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Statement showing profit/loss in forward market

 Price as at expiry Particulars 4.30 4.7 5.1 5.5 Sell Forward contract @ 5.05 5.05 5.05 5.05 Profit/loss on forward contract 0.75 0.35 -0.05 -0.45 Number of bushel 25000 25000 25000 25000 Profit/loss 18750 8750 -1250 -11250

Statement showig total profit and loss

 Price as at expiry Particulars 4.30 4.7 5.1 5.5 Selling price of wheat Crips(25000*price as at expiry) 107500 117500 127500 137500 Cost 111000 111000 111000 111000 Profit/loss in cash market -3500.00 6500.00 16500.00 26500.00 Profit/loss in forward contract 18750 8750 -1250 -11250 Total Profit/loss 15250.0 15250.0 15250.0 15250.0

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