2. (2 points) New Era Energy plans to purchase 10 million gallons of a specific fuel. The company is interested in hedging their position because as the new fuel's price increases the firm will lose money: $1 million for each $0.01 per gallon increase in the fuel's price. There are no futures contracts are available on the specific fuel New Era plans to purchase; however, the fuel is correlated positively with gasoline (0.83). The fuel's price change has a standard deviation that is 110% greater than the price change in gasoline futures prices (i.e. If the company uses gasoline futures to hedge their exposure, answer the following: a. What hedge ratio is optimal? b. How many contracts should be traded? Assume each contract is for 42,000 gallons