Question : 80. A hedger buys a futures contract that obligates the owner : 1284488

80. A hedger buys a futures contract that obligates the owner to take delivery of 5,000 bushels of wheat at a price of $3.30 per bushel. At expiration the spot price of wheat is $2.80 per bushel. The hedger has: 
A. saved 50? per bushel through hedging.
B. gained peace of mind at a price of 50? per bushel.
C. the opportunity to avoid taking delivery, since price declined.
D. locked in an effective price of $3.05 per bushel.

81. A hedger buys a futures contract that obligates the owner to take delivery of 5,000 bushels of wheat at a price of $3.30 per bushel. At expiration the spot price of wheat is $3.80 per bushel. The hedger has: 
A. saved 50? per bushel through hedging.
B. gained peace of mind at a price of 50? per bushel.
C. the opportunity to avoid taking delivery, since price declined.
D. locked in an effective price of $3.05 per bushel.

82. A soybean oil contract calls for delivery of 60,000 pounds. What happens to the seller of a soybean futures contract at 16 cents per pound if the futures price closes the next day at 14 cents per pound? 
A. The contract is marked to market with a $1,200 loss.
B. The contract is marked to market with a $1,200 gain.
C. Futures contracts are voided if price increases before expiration.
D. Nothing happens until the expiration of the contract.

60,000 pounds ? 2? = $1,200 gain marked to market

83. A futures contract seller is obligated to deliver 5,000 bushels of soybeans for $5.00 per bushel at expiration. If soybean futures close at $5.10 the next day, the seller: 
A. has a profit of $500 thus far on the contract.
B. has a loss of $500 thus far on the contract.
C. has no profit or loss, but is still obligated to deliver 5,000 bushels at $5.00.
D. will receive a check for $500 from the buyer of the contract.

84. What has happened to cause a $250 loss to be marked to the margin account of a futures contract buyer? 
A. The commodity decreased in value on that day.
B. The commodity increased in value on that day.
C. The commodity decreased in value by $250 over the contract’s life.
D. The commodity increased in value by $250 over the contract’s life.

85. Because most hedging acts to reduce risk, managers should expect that hedging will: 
A. increase profits.
B. decrease profits.
C. increase the firm’s stock price.
D. stabilize the firm’s dividend payout.

86. Hershey’s Chocolate is concerned about cocoa prices prior to building inventory for Halloween sales. Analysts project that price per ton could vary from $1,250 to $1,500. A September call option can be purchased with a $1,300 strike price for a premium of $145. What is Hershey’s worst-case scenario if it purchases these options? 
A. Cocoa prices will rise to $1,500 and Hershey is protected only to a price of $1,300.
B. Cocoa prices will decline to $1,250 and Hershey must pay an extra $50 per ton.
C. Cocoa prices will not rise above Hershey’s break-even price of $1,445, which equals the sum of the strike price plus the option premium.
D. Cocoa prices will remain below $1,300 and Hershey will lose $145 per option contract.

87. Producers who hedge through the purchase of put options must remember that they may be: 
A. reducing their profits compared to not hedging.
B. obligated to sell their product at a lower than market price.
C. increasing their overall risk.
D. facing unlimited price risk.

88. How does a soybean farmer lock in a price of $5.40 per bushel when the cash price at harvest is only $4.90? 
A. Profit in futures market to offset loss in cash market by selling futures contract at $5.40/bushel.
B. Break even in both markets by buying a futures contract at $5.40/bushel.
C. Profit in cash market to offset loss in futures market by buying futures contract at $5.40/bushel.
D. Break even in both markets by selling a futures contract at $5.40/bushel.

89. A gasoline distributor buys a gasoline futures contract that requires acceptance of 42,000 gallons of gasoline at $0.94 per gallon. How is the account marked to market if gasoline futures close the next day at $0.97? 
A. A loss of $1,260 is posted to the account.
B. A gain of $1,260 is posted to the account.
C. A loss of $12,600 is posted to the account.
D. A gain of $12,600 is posted to the account.