Consolidated Bakeries Needs to Acquire 100,000 Bushels of Wheat Each

question 78

Essay

Consolidated Bakeries needs to acquire 100,000 bushels of wheat each quarter.The spot price is $3.75 per bushel but is expected to increase.Consolidated can purchase call options on 5,000 bushels of wheat with a strike price of $3.80 per bushel and a premium of $.03 per bushel.Calculate total expected savings from purchasing the options if wheat is forecasted to sell at $3.90 per bushel in three months.Conversely, how much did it cost to hedge if the wheat price is unchanged in three months?

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Definitions:

Critical Work Behaviors

The essential actions performed by employees that directly influence the effectiveness and success of an organization.

Integrity Tests

Attempt to assess an applicant’s moral character and honesty.

Moral Character

The set of qualities that defines a person's principles and ethical standards guiding their behavior and actions.

Honesty

The quality of being truthful, transparent, and free from deceit in one's actions and communications.