A company needs to buy significant quantities of electricity for its operations. This is a major component of the costs that they face, and they would like to hedge their exposure. They are given two options: a futures contract which would allow them to lock in a price today of $55 / KwH of electricity, for deliver in 1 years time, and a 1 year option with a cost of $6 per KwH hedged, and an exercise of $48 per KwH.

At what final electricity price does the company prefer options? At what final prices do they prefer futures? At what final price are they indifferent? (2.5 marks)