1. As the CEO of Gelta Airlines, your compensation is tied to the performance of firm. You know that fuel price has a significant impact on the performance of the firm. To avoid operating losses from high fuel prices, you are considering 100 call contracts (1 contract = 100 call options) with exercise price of $30/barrel. Its future price is either $25 or $50. The risk-free rate is 10% and the current market price of the stock is $28.
   1. What is the value of these call contracts? If the future price is either $20 or $70, how does it change your result?
   2. If the exercise price is $20, then what is the value of these call contracts? If the future price is either $20 or $70, how does it change your result?
   3. Considering a frictionless market, how do shareholders react on the disclosure of such contracts?

Note: Show all your works for parts a and b, including your strategy for the replicating portfolios and no arbitrage condition.