Steven11
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Joined: 19 Jun 2012
Online Status: Offline
Posts: 1
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| Posted: 19 Jun 2012 at 05:14 | IP Logged
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Hi guys,
I've the following question I have trouble answering it:
In January a large producer of commercial flour
determines that he needs
500,000 bushels of wheat in May. Wheat can either be
bought in spot and futures markets. It is likely
that the producer, being a large player in the market,
has a good knowledge of wheat market
conditions. Suppose that this producer expects the spot
price of wheat to be $10.50 per bushel in May,
and the current futures price for the May delivery of
wheat is $9.50. The producer also forecasts that
the yearly standard deviation of wheat spot prices is
2.8. Suppose the producer maximizes a meanvariance
objective with r = 1/1,000,000. Calculate the optimal
number of futures contracts to buy or
sell (ignore the time value of money).
Anybody can help me with this?
Thanks!
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Topic: Question futures contracts
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