On the London Metals Exchange the price for copper to be delivered in one year is $9,000 a ton. (Payment is made when the copper
On the London Metals Exchange the price for copper to be delivered in one year is $9,000 a ton. (Payment is made when the copper is delivered.) The risk-free interest rate is .5% and the expected market return is 8%.
a. Suppose that you expect to produce and sell 100,000 tons of copper next year. What is the PV of this output? Assume that the sale occurs at the end of the year.
b. If copper has a beta of 1.2, what is the expected price of copper at the end of the year? What is the certainty-equivalent price?
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Authors: Richard Brealey, Stewart Myers, Franklin Allen
11th edition
978-9332902701, 9332902704, 978-0078034763
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