26.You are interested in taking a vacation to Yemen next year,but you are worried about the price of the trip.Over the past three years,the price of a trip to Yemen has ranged between $3,500 and $4,500.The current price is $4,000.You wish to maintain the possibility of a lower price.How would you eliminate the possibility of rising prices,but still maintain the possibility of a gain from lower prices? (a)Purchase an option today from the sponsor,which would allow you to pay the lower of $4,000 or the market price at the time you take your Yemen vacation. (b)Purchase an option today from the sponsor,which would allow you to pay the higher of $4,000 or the market price at the time you take your vacation to Yemen. (c)Leave it to the market. (d)Arrange a futures contract through the newspaper. Answer:(a) Questions 27-30 refer to the following information. You are Chief Financial Officer of GreenShrimp and you purchase a large quantity of coffee each month.You are concerned about the price of coffee one month from now. You want to guarantee that you will not pay more than $1.60 per pound for fifty thousand pounds.You do not want to pay for insurance,but you do want to lock in a price of $1.60 per pound for fifty thousand pounds. 27.What is the economics of a futures transaction if the spot price on delivery date is $1.35? (a)Cost of coffee purchased from supplier=$67,500;cash flow from futures contract= $12,500 paid by GreenShrimp;total outlay =$80,000 (b)Cost of coffee purchased from supplier =$67,500;cash flow from futures contract $12,500 paid to GreenShrimp;total outlay =$55,000 (c)Cost of coffee purchased from supplier =$80,000;cash flow from futures contract= $0 paid to GreenShrimp;total $80,000 (d)Cost of coffee purchased from supplier=$80,000;cash flow from futures contract= $12,500 paid to GreenShrimp;total =$92,500 Answer:(a) 28.What is the economics of a futures transaction if the spot price on delivery date is $1.80? (a)Cost of coffee purchased from supplier =$62,500;cash flow from futures contract $12,500 paid by GreenShrimp;total outlay=$80,000 (b)Cost of coffee purchased from supplier=$80,000;cash flow from futures contract= $0 paid by GreenShrimp;total outlay =$80,000 (c)Cost of coffee purchased from supplier =$90,000;cash flow from futures contract= $10,000 paid to GreenShrimp;total outlay =$80,000 (d)Cost of coffee purchased from supplier $90,000;cash flow from futures contract $10,000 paid by GreenShrimp;total outlay=$100,000 Answer:(c) 11-711-7 26. You are interested in taking a vacation to Yemen next year, but you are worried about the price of the trip. Over the past three years, the price of a trip to Yemen has ranged between $3,500 and $4,500. The current price is $4,000. You wish to maintain the possibility of a lower price. How would you eliminate the possibility of rising prices, but still maintain the possibility of a gain from lower prices? (a) Purchase an option today from the sponsor, which would allow you to pay the lower of $4,000 or the market price at the time you take your Yemen vacation. (b) Purchase an option today from the sponsor, which would allow you to pay the higher of $4,000 or the market price at the time you take your vacation to Yemen. (c) Leave it to the market. (d) Arrange a futures contract through the newspaper. Answer: (a) Questions 27-30 refer to the following information. You are Chief Financial Officer of GreenShrimp and you purchase a large quantity of coffee each month. You are concerned about the price of coffee one month from now. You want to guarantee that you will not pay more than $1.60 per pound for fifty thousand pounds. You do not want to pay for insurance, but you do want to lock in a price of $1.60 per pound for fifty thousand pounds. 27. What is the economics of a futures transaction if the spot price on delivery date is $1.35? (a) Cost of coffee purchased from supplier = $67,500; cash flow from futures contract = $12,500 paid by GreenShrimp; total outlay = $80,000 (b) Cost of coffee purchased from supplier = $67,500; cash flow from futures contract = $12,500 paid to GreenShrimp; total outlay = $55,000 (c) Cost of coffee purchased from supplier = $80,000; cash flow from futures contract = $0 paid to GreenShrimp; total = $80,000 (d) Cost of coffee purchased from supplier = $80,000; cash flow from futures contract = $12,500 paid to GreenShrimp; total =$92,500 Answer: (a) 28. What is the economics of a futures transaction if the spot price on delivery date is $1.80? (a) Cost of coffee purchased from supplier = $62,500; cash flow from futures contract = $12,500 paid by GreenShrimp; total outlay = $80,000 (b) Cost of coffee purchased from supplier = $80,000; cash flow from futures contract = $0 paid by GreenShrimp; total outlay = $80,000 (c) Cost of coffee purchased from supplier = $90,000; cash flow from futures contract = $10,000 paid to GreenShrimp; total outlay = $80,000 (d) Cost of coffee purchased from supplier = $90,000; cash flow from futures contract = $10,000 paid by GreenShrimp; total outlay = $100,000 Answer: (c)