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:

Type A Behaviour

A personality trait characterized by high levels of competitiveness, impatience, aggressiveness, and a constant sense of urgency.

Physiologically Risky

Situations or activities that pose a potential danger or threat to the physical health or well-being of individuals.

Depersonalization

A psychological state in which an individual feels detached from their thoughts, feelings, or sense of identity, often as a response to stress or trauma.

Emotional Exhaustion

A state of feeling overly drained and depleted of emotional resources, often as a result of prolonged stress or burnout.