A Company Will Buy 1000 Units of a Certain Commodity

question 4

Multiple Choice

A company will buy 1000 units of a certain commodity in one year. It decides to hedge 80% of its exposure using futures contracts. Spot price and futures price are currently $100 and $90. The one year futures price of the commodity is $90. If the spot price and the futures price in one year turn out to be $112 and $110, respectively. What is the average price paid for the commodity?

• A) $92
• B) $96
• C) $102
• D) $106

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Definitions:

Fraud Or Duress

refers to unlawful pressure or deceit used to coerce someone into a contractual agreement, compromising the agreement's validity.

Bequest

A transfer of personal property through a will.

Legacy

A bequest; a testamentary gift of personal property. Sometimes incorrectly applied to a testamentary gift of real property.

Testamentary Capacity

The legal competence of an individual to make a will, including the understanding of the nature of the document, the assets to be disposed of, and the identity of the beneficiaries.