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Q) Still assuming a forward contract price of $150/ton, what percentage of the crop should the farmer sell forward? (Use excel solver to answer the question.)

Selling with Forward Contract or on the Spot Market A farmer faces two uncertainties regarding the revenue from selling his crop. First, the yield of the crop is uncertain: the harvest could produce a large crop of 10,000 tons or a small crop of 6,000 tons, with equal probability. Second, the spot market price at the time the crop will be sold could be high at $180 per ton, or low at $120 per ton. If the crop is large, the probability of a high market price is 50%; if the crop is small, there is a 70% probability that the market price will be high. To manage the future price risk, the farmer can choose to sell all or part of the crop in advance with a forward contract at a price of $150/ton. Selling with Forward Contract or on the Spot Market A farmer faces two uncertainties regarding the revenue from selling his crop. First, the yield of the crop is uncertain: the harvest could produce a large crop of 10,000 tons or a small crop of 6,000 tons, with equal probability. Second, the spot market price at the time the crop will be sold could be high at $180 per ton, or low at $120 per ton. If the crop is large, the probability of a high market price is 50%; if the crop is small, there is a 70% probability that the market price will be high. To manage the future price risk, the farmer can choose to sell all or part of the crop in advance with a forward contract at a price of $150/ton

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