Question

Suppose today is May 1, 2016, and your firm produces breakfast cereal and needs 200,000 bushels of corn in July 2016 for an upcoming promotion. You would like to lock in your costs today because you are concerned that corn prices might rise between now and July. Each contract is for 5,000 bushels; the settle price for July 2016 is $5.18 per bushel. Suppose corn prices are $5.14 per bushel in July. What will your cumulative mark to market be

Answer 1

Answer: -$8000

Step-by-step explanation:

Based on the information given in the question, the cumulative mark to market will be calculate as:

= (5.14 - 5.18) ×

= 0.04 × 200,000

= 8000

The cumulative mark to market is gotten as - $8000 and since it's negative, it implies that a loss was incur by the investor in the future contracts.