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Suppose that Apple Juice Production Company is planning to sell 40,000 pounds of apple some...

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Finance

  1. Suppose that Apple Juice Production Company is planning to sell 40,000 pounds of apple some future date. The variance of changes in the futures price per pound vdF is 14.73, that for changes in the spot price per ounce vdS is 13.88, and the correlation coefficient between the spot and futures price changes corrS,F is 0.78. The contract size is 150 pounds per contract.
    1. Compute the optimal hedge ratio for the Apple Juice Production Company.
    1. How many contracts do they need to hedge their position? Will this be a buying or a selling hedge? Please show all the steps with formula !!

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