A Farmer Sells Futures Contracts at a Price of $2

question 57

Multiple Choice

A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn.
-Ignoring the transaction costs,how much did the farmer improve his cash flow by hedging sales with the futures contracts?

• A) $0
• B) $2,000
• C) $31,875
• D) $33,875

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Definitions:

Crib Death

Also known as Sudden Infant Death Syndrome (SIDS), it is the unexplained death of a healthy infant, usually during sleep.

Receptors of Light

Specialized cells in the eyes, such as rods and cones, that respond to light and enable vision.

Cones

Photoreceptor cells in the retina of the eye that are responsible for color vision and function best in relatively bright light.

Non-rapid Eye Movement Sleep

A type of sleep characterized by slower brain waves, limited eye movement, and reduced muscle activity, occupying most of the sleep cycle and associated with deep restorative sleep.