1. (30 Pts) Frontier Airlines signed a contract with BP to hedged the cost of jet fuel by purchasing options that allowed the airline to purchase fuel at a fixed price for 2 years. The savings in fuel costs were $100,000 in quarter 1, increasing by 1% per quarter through the 2-year option period. In order to keep this contract active, Frontier Airlines should pay $30,000 per month. What is the present worth of the contract at an interest rate of 16% per semiannual compounded quarterly?
1. (30 Pts) Frontier Airlines signed a contract with BP to hedged the cost of jet fuel by purchasing options that allowed the airline to purchase fuel at a fixed price for 2 years. The savings in fuel costs were $100,000 in quarter 1, increasing by 1% per quarter through the 2-year option period. In order to keep this contract active, Frontier Airlines should pay $30,000 per month. What is the present worth of the contract at an interest rate of 16% per semiannual compounded quarterly?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1. (30 Pts) Frontier Airlines signed a contract with BP to hedged the cost of jet fuel by purchasing options
that allowed the airline to purchase fuel at a fixed price for 2 years. The savings in fuel costs were
$100,000 in quarter 1, increasing by 1% per quarter through the 2-year option period. In order to
keep this contract active, Frontier Airlines should pay $30,000 per month. What is the present worth
of the contract at an interest rate of 16% per semiannual compounded quarterly?
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