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Author Question: To hedge the price risk associated with one of its major inputs, Binford Homes uses lumber futures ... (Read 81 times)

tfester

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on: Apr 25, 2021
To hedge the price risk associated with one of its major inputs, Binford Homes uses lumber futures contracts which trade on the Chicago Mercantile Exchange (CME). The CME Random Length Lumber futures contract calls for delivery of 110,000 board feet (110 MBF, 1 MBF is 1,000 board feet of lumber) of random length 8-foot to 20-foot pieces. Primarily, the deliverable species is Western Spruce-Pine-Fir.

In October of last year, Binford Homes bought 100 CME lumber contracts for March delivery at a price of $300 per MBF. It is now March 16th and Binford buys lumber in the spot market, where it trades for $263 per MBF, and executes an offset trade in the futures market. Today's futures prices are quoted in the table below.

Expiry MonthSettlement PriceVOLOpen Interest
March262.509004000
May278.70146416
July283.00226
What is your total purchase cost for the 110 MBF of lumber? The total purchase cost includes profits from the futures transactions.
◦ $300.50 per MBF
◦ $300.00 per MBF
◦ $262.50 per MBF
◦ $263.00 per MBF
Corporate Finance Online ¦ Eakins, McNally ¦ 2nd Edition
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Marked as best answer by tfester on Apr 25, 2021

Shshxj

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Reply #1 on: Apr 25, 2021
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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tfester

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Reply 2 on: Apr 25, 2021
Great answer, keep it coming :)

meganmoser117

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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