An associate of yours is offering your firm to buy an oil well that will produce 1,000,000 barrels of oil next year. Assume for simplicity that the oil is available at the end of the year. The well will be closed forever after that. Suppose that the operating expenses areSlO,000,000. Suppose that the forward price for oil delivered one year from today is $12 barrel and that the risk-free interest rate is 15%. What is the maximum amount that you are willing to pay for the oil well? Form a perfect tracking portfolio for the oil well. Prove that if the actual oil price goes to $20 one year from today, the tracking portfolio that you built leaves you in the same cash-flow position as if you bought the oil well. Keep the same assumptions as above about production capability, interest rates, and forward prices for oil, but assume now that your production costs areS15,000,000 instead. How much are you be willing to pay for the oil well if analysts (and you agree with them) expect the oil price to be $20/barrel