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A soybean farmer is hedging production using a fence composed of the two following options positions...

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Finance

A soybean farmer is hedging production using a fence composed ofthe two following options positions on Nov 18 soybean futures:Holding a put with a $10.00 strike price and a premium of $0.39Writing a call with a $11.20 strike price and a premium of $0.29(Note: Assume an expected basis of -$0.55, and a current futuresprice of $10.30)

a) Calculate both the minimum expected selling price and maximumnet selling price of the fence.

b) Draw the pay-off diagram for the fence described above.

Answer & Explanation Solved by verified expert
4.2 Ratings (894 Votes)
Holding a put with a KP 1000 strike price and apremium of P 039Writing a call with a KC 1120 strike price and apremium of C    See Answer
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A soybean farmer is hedging production using a fence composed ofthe two following options positions on Nov 18 soybean futures:Holding a put with a $10.00 strike price and a premium of $0.39Writing a call with a $11.20 strike price and a premium of $0.29(Note: Assume an expected basis of -$0.55, and a current futuresprice of $10.30)a) Calculate both the minimum expected selling price and maximumnet selling price of the fence.b) Draw the pay-off diagram for the fence described above.

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