Hershey's Chocolate Is Concerned About Cocoa Prices Prior to Building

question 109

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 only protected 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.

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Definitions:

Cold War

A period of geopolitical tension between the Soviet Union and the United States and their respective allies from the end of World War II until the dissolution of the Soviet Union in 1991, characterized by threats, propaganda, and other measures short of open warfare.

Consumerism

A social and economic order that encourages the acquisition of goods and services in ever-increasing amounts.

Foreign Policy

A government's strategy in its interactions with other nations, designed to achieve national objectives.