Risk Management Solutions 3

# Risk Management Solutions 3 - bills had a yield of 1.80(a...

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Old Exam Questions - Risk Management - Solutions Page 3 of 4 Pages Value of the futures contract on the index = 250 + 9.50 = 259.50 7. Assume that in December the cash price for soybean meal is \$150 per ton. You decide to hedge your expected June harvest by selling 1,000 July futures contracts at \$160 per ton. Assume that in June, when you lift the hedge, the cash price is \$165 per ton and the July futures are selling for \$180 per ton. What will be the effective price per ton that you will have earned on your crop? A. \$135 * B. \$145 C. \$155 D. \$165 E. None of the above. Sell futures for \$160 and buy back at \$180, so lose \$20. Cash Price \$165 Minus loss on Futures - 20 Effective Price \$145 8. Assume that in April you knew that you would have \$1,000,000 in August to invest in 90-day T-bills. At that time, 90-day cash T-bills had a yield of 1.60%, 120-day cash T-
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Unformatted text preview: bills had a yield of 1.80% (a spread of +20 basis points), and the September 90-day T-bill futures contract had a yield of 2.30%. You decided to hedge by purchasing the September futures contract, knowing that you would take off the hedge in August and purchase 90-day cash T-bills. Assume that it is now August and the spread between 3-month and 4-month T-bills has changed to -15 basis points, such that 90-day cash T-bills have a yield of 2.50% and 120-day cash T-bills (as well as the September futures contract) have a yield of 2.35%. Based on this, determine your effective yield from this hedge. A. 2.60% B. 2.75% * C. 2.45% D. 2.90% E. 2.30% Cash 90-day T-bills = 2.50% Cash 120-day T-bills = 2.35% September contract = 2.35% Futures Value at Sale (2.35%) \$994,125 Value at Purchase (2.30%) 994,250 Loss on Transaction - \$ 125 90-Day Cash T-Bills...
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