20. What is the standard deviation of the hedged fuel cost in dollars? (a) $15.3K (b) $94.6K (c) $11.2K (d) $82.2K

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The following information corresponds to Question 19 and 20.
An airline company knows that it will need to purchase 5,000 metric tons of jet fuel in three
months. It seeks protection against an upturn in prices using futures contracts. As there is no
futures contract on jet fuel, the company refers to heating oil instead. The company can hedge
using heating oil futures contracts traded on NYME and the notional for one contract is 42,000
gallons. The current price of jet fuel is $277/metric ton. The futures price of heating oil is
$0.6903/gallon. Additionally, you are given the regression results below.
Linear Regression Results for Airline Risk Management
The dependent variable (Y) is the quarterly return on jet fuel price, while the independent variable (X) is the
quarterly return on the heating oil futures contract. The table below summarizes the results of a linear regression
Y = a+BX+e, which covers estimates, standard errors, and other statistics. The numbers in the parenthesis denote
the standard error of the estimate. For instance, 0.007 denotes the estimated interceptâ = 0.007, whereas 0.0101
below it corresponds to the standard error of this estimate.
â
Cox
Observations
R²
Adjusted R²
Residual Std. Error
F Statistic
Note:
Dependent variable:
Jet Fuel
0.007
(0.016)
1.065***
(0.101)
20
0.862
0.854
0.070 (df = 18)
111.980*** (df 1; 18)
=
*p<0.1; **p<0.05; ***p<0.01
Transcribed Image Text:The following information corresponds to Question 19 and 20. An airline company knows that it will need to purchase 5,000 metric tons of jet fuel in three months. It seeks protection against an upturn in prices using futures contracts. As there is no futures contract on jet fuel, the company refers to heating oil instead. The company can hedge using heating oil futures contracts traded on NYME and the notional for one contract is 42,000 gallons. The current price of jet fuel is $277/metric ton. The futures price of heating oil is $0.6903/gallon. Additionally, you are given the regression results below. Linear Regression Results for Airline Risk Management The dependent variable (Y) is the quarterly return on jet fuel price, while the independent variable (X) is the quarterly return on the heating oil futures contract. The table below summarizes the results of a linear regression Y = a+BX+e, which covers estimates, standard errors, and other statistics. The numbers in the parenthesis denote the standard error of the estimate. For instance, 0.007 denotes the estimated interceptâ = 0.007, whereas 0.0101 below it corresponds to the standard error of this estimate. â Cox Observations R² Adjusted R² Residual Std. Error F Statistic Note: Dependent variable: Jet Fuel 0.007 (0.016) 1.065*** (0.101) 20 0.862 0.854 0.070 (df = 18) 111.980*** (df 1; 18) = *p<0.1; **p<0.05; ***p<0.01
20. What is the standard deviation of the hedged fuel cost in dollars?
(a) $15.3K
(b) $94.6K
(c) $11.2K
(d) $82.2K
Transcribed Image Text:20. What is the standard deviation of the hedged fuel cost in dollars? (a) $15.3K (b) $94.6K (c) $11.2K (d) $82.2K
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