You are the buyer for a cereal company and you must buy 80,000 bushels of corn next month.The futures contracts on corn are based on 5,000 bushels and are currently quoted at 415′0 cents per bushel for delivery next month.If you want to hedge your cost,you should _____ contracts at a cost of _____ per contract.
A)buy 12; $2,075
B)buy 16; $20,750
C)buy 16; $2,075,000
D)sell 12; $2,075
E)sell 16; $2,075,000

Question

Quizplus · Accepted Answer

Number of contracts = 80,000/5,000 = 16 contractsContract value = 5,000 × (415.0′/100) = $20,750.You should buy 16 contracts at $20,750 per contract.

You Are the Buyer for a Cereal Company and You