7) Company Z will purchase 1 million pounds of tin in one year and hedges using copper futures. a. What is the optimal hedge ratio? b. If a contract of copper is 100,000 pounds, what is the number of contracts needed assuming no daily settlement? c. What is the number of contracts assuming daily settlement or tailing? From historical data Of=0.05, (Futures volatility) Os =0.025 (spot volatility), and p= 0.50. Spot price is $2.00 and futures price is $2.50. Volatilities and correlations are the same if estimated using daily or annual data. Risk-free rate is 3% annual compound. 7) Company Z will purchase 1 million pounds of tin in one year and hedges using copper futures. a. What is the optimal hedge ratio? b. If a contract of copper is 100,000 pounds, what is the number of contracts needed assuming no daily settlement? c. What is the number of contracts assuming daily settlement or tailing? From historical data Of=0.05, (Futures volatility) Os =0.025 (spot volatility), and p= 0.50. Spot price is $2.00 and futures price is $2.50. Volatilities and correlations are the same if estimated using daily or annual data. Risk-free rate is 3% annual compound