Question

b. You are concerned about the availability as well as the price of the toy and would like to lock in the delivery of the toy

Toy: Teddy bear

Current Price: $67.99

Need: 500 bears

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Answer #1

Solution:

Toy: Teddy bear

Current Price: $67.99

Need: 500 bears

Part B )

Current date = March 2020

Future Delivery date = Dec 2020

Spot Price = $67.99

Quantity = 500

Future price = Spot price * exp (interest rate * time )

So Future contract :

Buyer of contract will be us and seller will be the toy wholesaler

Long Position: We will have long position

Short Position: The wholesaler will have a short position

Delivery Date: 1 Dec 2020

Price : Price will follow this equation  Future price = Spot price * exp (interest rate * time ) . Since interest rate is not given hence we are not calculating the actual price.

Part C )

A call is written when the seller is expecting that the price will not go more than the strike price (X) and buyer buys a call option when he expects that the price of the asset will go higher than the strike price.

Call option for this transaction:

Buyer: We will be the buyer and holder of call option

Seller: The wholesaler will be the writer  of call option

Strike price: 70 (assumed)

Date: December 2020 . ( 9 months )

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