1a. Imagine that Money Air entered into a forward contract (forward price of $105) for half of their 2017 fuel needs and bought calls (strike of $120 and premium of $10). Produce the table and graph for the price per barrel the airlines will pay as a function of the 2017 spot price.

1b. Consider the payoff from the above structure (half of their fuel needs hedged with forwards and half hedged by purchasing calls) when they are financially settled. Produce a table and graph of this payoff per barrel

1c. The board asks you to explore an alternative. Money Air buys a call (strike of $120, premium of $10) and sells a call (strike of $140, premium of $5). Produce a table and graph of the payoff for this structured assuming it is financially settled.

slide included for reference

Cost to Segal Air Cost to Segal Air (futures Financially Spot 2017 Forwards and Futures settling the ($80) ($55) ($30) Price, Cost, and Settlement in 2017 $25 $50 $75 $100 $125 $150 $175 $200 $25 $50 $75 $100 $125 $150 $175 $200 $105 $105 $105 $105 $105 $105 $105 $105 $200 $150 $20 $45 $70 $95 $100 $50 Settlement in 2017- Buyer & Seller $200 $0 $150 $20 $40 $60 $80 100 120 $140 $160 $180 $200 Cost to Segal Air (unhedged) --Cost to Segal Air (futures contract) -Financially settling the futures (buyer) $100 ($50) $50 ($100) 2017 Spot Price (unknown in 2016) S0 20 $40 $60 $80 $100 $140 $160 $180 $200 -Financially settling ures (buyer) ($50) Financially settling the futurieskseller)