Hershey's Chocolate Is Concerned About Cocoa Prices,which Are Currently $3,000

question 50

Multiple Choice

Hershey's Chocolate is concerned about cocoa prices,which are currently $3,000 a ton.Analysts project that the cost of cocoa purchases could vary from $2,900 to $3,100 a ton.A September call option can be purchased with a $2,950 exercise price for $145.What is Hershey's worst-case scenario if it purchases these options?

• A) Cocoa prices will rise to $3,100 and Hershey is protected only to a price of $2,950.
• B) Cocoa prices will not change from their current level and Hershey will have wasted the cost of the option.
• C) Cocoa prices will not rise above Hershey's break-even price of $3,095, which equals the sum of the exercise price plus the cost of the option.
• D) Cocoa prices will fall below $2,950 and Hershey will lose the $145 cost of the option.

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