Kellogg will buy 2 million bushels of oats in two months.Kellogg finds that the ratio of the standard deviation of the change in spot and futures prices over a two-month period for oats is 0.86 and the coefficient of correlation between the two-month change in the price of oats and the two-month change in its futures price is 0.75.How many contracts do they need to hedge their position,if the size of each oats contract is 5,000 bushels,and oat trades in the CME Group?
A) 230
B) 258
C) 260
D) 279
E) None of these answers are correct.
Correct Answer:
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