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On March 1, the price of a commodity is $1,000, and the December futures price is...

On March 1, the price of a commodity is $1,000, and the December futures price is $1,015. On November 1, the price is $980, and the December futures price is $981. A producer of the commodity entered into a December futures contracts on March 1 to hedge the sale of the commodity on November 1. The producer closed out its position on November 1. The effective price realized is therefore ___________. $1015-$981 or $34 $981+15 or $996 $1015 -1000 or $15 $980+15 or $995 $981+$34 or $1015 $980+$34 or $1014

Solutions

Expert Solution

Solution :

The producer will take a short position on March 1 at $1015. On November 1, the future price is $981.

Gain from the future contract = $1,015 -$981= $34

The spot market price on November 1 is $980

Hence effective price = Spot price + Gain from the future contract = $980 + $34 = $1014

Option D is correct ) $980+$34 or $1014

jeff jeffy answered 2 years ago
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