An oil producer expects to have 8,000 barrels of oil to sell in 10 months. How can the producer use forward contracts to create a perfect hedge if each forward contract is written on 1,000 oil barrels and matures in 10 months? Assume the forward price for each barrel of oil today for delivery in 10 months is $80, the spot price of a barrel of oil today is $79 dollars and the spot price of a barrel of oil in 10 months is $82 dollars. What net price does the oil producer receive for each barrel of oil in 10 months?

An oil producer expects to have 8,000 barrels of oil to sell in 10 months. How can the producer use forward contracts to create a perfect hedge if each forward contract is written on 1,000 oil barrels and matures in 10 months? Assume the forward price for each barrel of oil today for delivery in 10 months is $80, the spot price of a barrel of oil today is $79 dollars and the spot price of a barrel of oil in 10 months is $82 dollars. What net price does the oil producer receive for each barrel of oil in 10 months?

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

See similar textbooks

Similar questions

An asset has a current price of $10 and has volatility of 0.35. The expected price in 9 months is $13. The US continuous risk free rate (rf) is 5.5% while the Philippine continuous risk-free rate (rd) is 6.5%. The value to the short and to the long would be? The price of a European stock is €50 and it as an expected price of €65 in 8 months. The stock has a variance of 0.36. The European continuous risk free rate is 4.5% while the US continuous risk free rate is 3.2%. The value to the short and to the long would be?
Assume that the spot price of an underlying asset is Php250 and suppose the 10% is the annual risk-free interest rate. At equilibrium, the 6-month forward price of the underlying asset should be nearest to Php275.00 Php262.50 Php256.25 Php250.00
Ay 3. Please solve ASAP showing formulas/explanation. Will upvote once done but need help fast. Thank you in advance! 1- Suppose U.S. Airway wants to buy 1,000 barrels of jet fuel in 3 months. Today it enters one 6-month heating oil futures contract on NYMEX to hedge its position. The jet fuel spot price today is $29/barrel. The today's heating oil futures price is $19/barrel. Assume that 3 months later, the spot prices for jet fuel and heating oil are $35/barrel and $27/barrel respectively and the 3-month futures price for heating oil is $29. What is the basis 3 months from now when U.S. Air purchases the jet fuel?
Three months ago you short a forward contract on soya bean that expires today has a forward delivery price of$400 per Metric Ton. The current forward price is$420 . The three-month risk-free interest rate (with continuous compounding) is8% p.a. What is the value of the short forward contract? A) +$27.92 B) −$27.92 C) +$20.00 D) −$35.68
The price of a stock is currently $200 per share. It'll pay a dividend of $0.85 every 3 months (the next dividend will occur 3 months from now). 3-month and 5-month risk free interest rates are 0.2% and 0.25%, respectively. All rates are annual rates with continuous compounding. What should be the delivery price of a 5-month forward contract so that the contract is of zero cost? Keep 2 digits in your final answer. Do not include $ sign.
1. Suppose a financial asset, ABC, is the underlying asset for a futures contract with settlement of 6 months from now. You know the following about this financial asset and futures contract in the cash market ABC is selling for $80; ABC pays $8 per year in two semiannual payments of $4, and the next semiannual payment is due exactly 6 months from now; and the current 6month interest rate at which funds can be loaned or borrowed is 6%. What action would you take if the futures price is $83? What action would you take if the futures price is $76?
An asset has a current price of $10 and has volatility of 0.35. The exercise price in 9 months is $13. The US continuous risk free rate (r^f ) is 5.5% while the Philippine continuous risk-free rate (r^d ) is 6.5%. The value of the call option and put option would be?
The US based company is investing in a 2-year project in Europe. The initial investment is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is €8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the required rate of return of the project is 14%, calculate the NPV of the project in dollars. (A) The NPV of the project in dollars is $1,773.62. (B) The NPV of the project in dollars is $1,704.32. (C) The NPV of the project in dollars is $1,418.90. (D) The NPV of the project in dollars is $1,989.74.
BioCytex SA, a French biotech company expects to receive royalty payments totaling GBP 1.25 million next month and wants to receive USD. It is interested in protecting these payments against a drop in the value of GBP It can sell 30 day GBP futures at a price of USD 1.6513 /GBP or it can buy pound put options with a strike price of USD 1.6612 /GBP at a premium of 2 cents per GBP. The spot price of the GBP is currently USD 1.6560 /GBP and the GBP is expected to trade in the rage of USD 1.6250 /GBP to USD 1.7010 /GBP BioCytex treasurer believes that the most likely price for the GBP in 30 days will be USD 1.6400 /GBP Calculate BioCytex’s profits and losses in USD for the put option within its range of expected exchange rates
A stock price is currently $100. Over each of the next two six-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 8% per annum with continuous compounding. What is the value of a one-year European call option with a strike price of $100? What is the value of a one-year European put option with a strike price of $100? Verify that the European call and European put prices satisfy put–call parity.
1) A gold miner expects to have 80, 000 ounces of silver gold production at end of 2023. It has concern about silver gold price may decline over the next several months. Silver price today is $23.5 per oz; the futures price for December 2023 delivery is $24.0 per ounce. Each silver contract is 5000 oz. silver. Question: 1) How many silver contacts it will need to sell to hedge the price thru year end 2023? 2) If at year end 2023, silver price declines to $23 per oz., calculate and see how the hedge works.
Assume that Promina Group expects to need NZ$943,000 in 6 months. The existing spot rate of the New Zealand dollar is $0.70. The 6-month forward rate of the New Zealand dollar is $0.72. Promina Group created a probability distribution for the future spot rate in 6 months as follows: FUTURE SPOT RATE PROBABILITY 28% 46% 26% $0.68 $0.73 $0.78 Assume that 6-month put options on New Zealand dollars are available with an exercise price of $0.73 and a premium of $0.04 per unit. 6-month call options on New Zealand dollars are available with an exercise price of $0.70 and a premium of $0.03 per unit. Assume the following money market rates per annum: US Deposit rate 7% Borrowing rate 8% Determine whether a forward hedge, a money market hedge, or a currency options hedge would be the most appropriate. NEW ZEALAND 2% 3% a. b. Compare the most appropriate hedge to an unhedged strategy and decide whether Promina Group should hedge its position.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS