Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Question
Chapter 9.M, Problem M.1.1P
To determine
Hedging:
Hedging against an investment risk is termed for strategically implementing the instruments and tools in the market to minimize the risk and effects of any adverse price movements. It can be said that investors are benefitted through hedging as they hedge one investment by making another investment.
To calculate :
The transaction record of inventory and the hedging instrument assuming qualification as a fair value hedge.
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Problem 2.23.
Suppose that on October 24, 2015, a company sells one April 2016 live-cattle futures contracts.
It closes out its position on January 21, 2016. The futures price (per pound) is 121.20 cents when
it enters into the contract, 118.30 cents when it closes out its position, and 118.80 cents at the
end of December 2015. One contract is for the delivery of 40,000 pounds of cattle. What is the
total profit? How is it taxed if the company is (a) a hedger and (b) a speculator? Assume that the
company has a December 31 year end.
a.)
Fair 2 month Forward
$125.70
Fair 6 month Forward
$126.68
Fair 1 year Forward
$113.86
Assume that the information in part (a) is still applicable, but that the forward contracts are trading at the following prices:
2-month forward $125.25
6-month forward $121.77
1-year forward $116.34
Output:
Describe the strategy you would use to achieve arbitrage profits (if possible), and calculate the arbitrage profit for each of the three forward contracts. For each strategy assume that it will cost you $2.5 to execute all the trades (round trip), as your total transaction cost (subtract $2.50 at the end).
What is the change in the value of seven November heating oil contracts for the prices displayed?
High
Low Close
3.7489 3.6652 3.7324
Contract
Open
Nov, Heating oil, 42,000 gal, $ and cents/gal 3.6730
Nov, Crude oil, 1,000 bbls. $ and cents/bbl 122.71
124.50 122.70 124.40
Chapter 9 Solutions
Advanced Accounting
Ch. 9.M - Prob. 1UTICh. 9.M - Prob. 2UTICh. 9.M - Prob. 3UTICh. 9.M - Prob. 4UTICh. 9.M - Prob. 5UTICh. 9.M - Prob. 1ECh. 9.M - Prob. 2ECh. 9.M - Prob. 3ECh. 9.M - Prob. 4.1ECh. 9.M - Prob. 4.2E
Ch. 9.M - Prob. 4.3ECh. 9.M - Prob. 4.4ECh. 9.M - Prob. 4.5ECh. 9.M - Prob. 4.6ECh. 9.M - Prob. 5ECh. 9.M - Prob. 6.1ECh. 9.M - Prob. 6.2ECh. 9.M - Prob. 7ECh. 9.M - Prob. M.1.1PCh. 9.M - Prob. M.1.2PCh. 9.M - Prob. M.2.1PCh. 9.M - Prob. M.2.2PCh. 9.M - Prob. M.3PCh. 9.M - Prob. M.4.3PCh. 9.M - Prob. M.4.4PCh. 9.M - Prob. M.4.5PCh. 9.M - Prob. M.4.6PCh. 9.M - Prob. M.5PCh. 9.M - Prob. M.6PCh. 9.M - Prob. M.7.1PCh. 9.M - Prob. M.7.2PCh. 9.M - Prob. M.7.3PCh. 9 - Prob. 1UTICh. 9 - Prob. 2UTICh. 9 - Prob. 3UTICh. 9 - Prob. 1.1ECh. 9 - Prob. 1.2ECh. 9 - Exercise 2 (LO 3) The accounting issues associated...Ch. 9 - Prob. 3.1ECh. 9 - Prob. 3.2ECh. 9 - Prob. 3.3ECh. 9 - Prob. 4.1ECh. 9 - Prob. 4.2E
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