Suppose the Current Spot Price of Corn Is $20 a Bushel

question 39

True/False

Suppose the current spot price of corn is $20 a bushel. A corn farmer expects to produce 2,000 bushels at the end of the season, and she wants to ensure that she gets at least $18 per bushel. Call options on 1,000 bushels of wheat with a strike price of $15,000 and an expiration date at the end of the season are selling for $3,000. By selling call options on her corn crop, the farmer can guarantee that she gets at least $18 per bushel.

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Definitions:

Finance Charge

the total cost, expressed as a monetary amount, of borrowing credit, including interest, fees, and any other charges associated with the transaction.

Rejection

The refusal to accept or agree to something, such as a proposal, offer, or contract.

Acceptance

In contract law, acceptance refers to the agreement by the party to whom an offer has been made, to the terms of that offer, resulting in a binding contract.

Art Collector

An individual or institution that acquires and possesses artworks for personal enjoyment, investment, or preservation.