17. Suppose a risk-neutral power plant needs 10,000 tons of coal for its operations next month. It is uncertain about the future price of coal. Today it sells for $60 a ton but next month it could be $50 or $70 (with equal probability). How much would the power plant be willing to pay today for an option to buy a ton of coal next month at today's price? (Ignore discounting over the short period of a month.) а. 5 b. 4 с. 3 d. 0
17. Suppose a risk-neutral power plant needs 10,000 tons of coal for its operations next month. It is uncertain about the future price of coal. Today it sells for $60 a ton but next month it could be $50 or $70 (with equal probability). How much would the power plant be willing to pay today for an option to buy a ton of coal next month at today's price? (Ignore discounting over the short period of a month.) а. 5 b. 4 с. 3 d. 0
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter1: Introduction And Goals Of The Firm
Section: Chapter Questions
Problem 4E: In the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act...
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![17. Suppose a risk-neutral power plant needs 10,000 tons of coal for its operations next month. It is uncertain
about the future price of coal. Today it sells for $60 a ton but next month it could be $50 or $70 (with equal
probability). How much would the power plant be willing to pay today for an option to buy a ton of coal next
month at today's price? (Ignore discounting over the short period of a month.)
а.
5
b.
4
с.
3
d.
NOTE: I KNOW THAT THE ANSWER IS (A), BUT
PLEASE INCLUDE ALL THE STEPS HOW TO SOLVE
THE PROBLEM BECAUSE I NEED TO PRACTICE.
THANK YOU.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb49f36d4-85cd-4b1e-a847-d9b915f74c08%2Fc9faa6ad-e39b-4b5d-aed3-bb3a10bf8a8a%2Fiau0uwh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:17. Suppose a risk-neutral power plant needs 10,000 tons of coal for its operations next month. It is uncertain
about the future price of coal. Today it sells for $60 a ton but next month it could be $50 or $70 (with equal
probability). How much would the power plant be willing to pay today for an option to buy a ton of coal next
month at today's price? (Ignore discounting over the short period of a month.)
а.
5
b.
4
с.
3
d.
NOTE: I KNOW THAT THE ANSWER IS (A), BUT
PLEASE INCLUDE ALL THE STEPS HOW TO SOLVE
THE PROBLEM BECAUSE I NEED TO PRACTICE.
THANK YOU.
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