Question

Suppose today is May 1, 2014, and your firm produces breakfast cereal and needs 90,000 bushels of corn in July 2014 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 2014 is $5.19 per bushel. Suppose corn prices are $5.09 per bushel in July. What will your cumulative mark to market be

Answer 1

$467,100

Explanation:

The solution of cumulative mark to market is shown below:-

Total cost for 90,000 bushels = Per bushel × Needed bushels

= $5.19 × 90,000

= $467,100

Therefore for calculating the total cost we simply applied the above formula i.e by multiplying the per bushel with the needed bushels so that the total cost for 90,000 bushels could arrive