1. For the following problems consider the following two firms: - Wirco produces wire. It buys copper and manufactures wires. One pound of copper can be used to produce one unit of wire, which sells for the price of copper plus $5. Fixed cost per unit is $3 and noncopper variable cost is per unit $1.50. - Telo installs telecommunications equipment and uses copper wire from Wirco as an input. For planning purposes, Telco assigns a fixed revenue of $6.20 for each unit of wire it uses. The 1-year forward price of copper is $1/lb. The 1-year continuously compounded interest rate is 6%. One-year option prices for copper are shown in the table below In your answers, consider copper prices in 1 year of $0.80,$0.90,$1.00$1.10, and $1.20. (a) If Telco does nothing to manage copper price risk, what is its profit 1 year from now, per pound of copper that it buys? If it hedges the price of wire by buying copper forward, what is its estimated profit 1 year from now? Construct graphs illustrating both unhedged and hedged profit. (b) Compute estimated profit in 1 year if Telco buys paylater calls as follows (i) Sell one 0.975-strike call and buy two 1.034-strike calls. (ii) Sell two 1.00-strike calls and buy three 1.034-strike calls. Draw a graph of profit in each case. (c) Suppose that Wirco does nothing to manage the risk of copper price changes. What is its profit 1 year from now, per pound of copper? Suppose that Wirco buys copper forward at $1. What is its profit 1 year from now