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.

---

Definitions:

Free-radical Polymerization

A method of polymerization that involves the polymer growth through the successive addition of free-radical building blocks.

BuLi

Short for Butyllithium, an organolithium reagent commonly used in organic synthesis to deprotonate acidic compounds and perform nucleophilic additions.

PhOH

The abbreviation for phenol, representing a hydroxyl group (-OH) bonded to a benzene ring.

Anionic Polymerization

A type of polymerization that involves the polymer growth through an anion active center, usually initiated by a strong base.