a. Suppose a grain elevator in lowa buys corn in cash market on Apr 19 at $7.10/bushel and expect to deliver it on May 25 through cash market. Elevator has to store it for one month and may face cash price fluctuations until the product is sold (for now, assume the cost of storage is zero dollars). On May 25 the cash market price of corn is $7.06 per bushel. i. What is the elevator's gain or loss if traded only in cash market? (10 points) ii. On April 19, elevator can sell corn in the futures market at $7.50 per bushel and buy them back on May 25 at $7.40 per bushel. What is the gain or loss in the futures market through this hedging? (10 points) iii. Calculate the Basis for both April 19 and May 25 transactions. (10 points) iv. Calculate the total return per bushel of corn to the grain elevator through such hedging in the futures market. (10 points) v. What is the net profit or loss through above hedging in the futures market? (10 points) Page 5 of 6 b. Now let's assume that storage from April 19 through May 25 has a cost of 10 cents ($0.10) per bushel of corn. i. In this scenario, what is the elevator's total gain or loss if buys and sells only in the cash market? (10 points) ii. Let's assume that the Basis on April 19 did not change. What is his/her new futures market price where he/she buys the futures contract back on May 25 so that his total loss in both cash market and storage cost covered as well as to have gained extra $0.05/bu over costs? (10 points) iii. What is the new basis on May 25? (10 points) c. Now suppose the elevator decides NOT to sell cash corn on May 25 at $7.06/bu. The Basis as of June 10 is expected to be $0.15. Now elevator decides to wait until June 10 and sell in cash market at $7.09/bu. The extra cost of storage from May 25 through June 10 is $0.07/bu. i. What is the total loss/gain if delivers only in cash market on June 10? (10 points) ii. What is the futures market price as of June 10 which s/he buys the contract back at? (10 points) iii. What is the gain or loss per bushel in the futures market trading? (10 points) iv. What is the total return per bushel of corn as of June 10? (10 points) v. What is the net profit or loss for the farmer through this hedging in the futures market?