(c) Explain why the producer in Part 3(b) above, may adjust their pure risk minimizing hedge ratio to 25% in the future? [3 marks) a) (b) Using a mean-variance framework, compute the optimal hedge ratio of a producer using oil futures contracts if in the oil market, the expected spot price is $10, the current futures price is $10, the standard deviation of the futures price is 10, the covariance of the spot and futures price is 20, Epf = 100 (where p and f are the spot and futures prices respectively) and the level of risk ayersion has a value of 0.1. [5 marks] (c) Explain why the producer in Part 3(b) above, may adjust their pure risk minimizing hedge ratio to 25% in the future? [3 marks] (d) Explain how the optimal amount invested in the risky asset will be affected if: The risk premium on the risky asset has increased. [2 marks] The investor's utility function has changed from U (FE) = -e-4 to U(1) = -e-28 (where it is the investor's payof) [2 marks] (c) Explain why the producer in Part 3(b) above, may adjust their pure risk minimizing hedge ratio to 25% in the future? [3 marks) a) (b) Using a mean-variance framework, compute the optimal hedge ratio of a producer using oil futures contracts if in the oil market, the expected spot price is $10, the current futures price is $10, the standard deviation of the futures price is 10, the covariance of the spot and futures price is 20, Epf = 100 (where p and f are the spot and futures prices respectively) and the level of risk ayersion has a value of 0.1. [5 marks] (c) Explain why the producer in Part 3(b) above, may adjust their pure risk minimizing hedge ratio to 25% in the future? [3 marks] (d) Explain how the optimal amount invested in the risky asset will be affected if: The risk premium on the risky asset has increased. [2 marks] The investor's utility function has changed from U (FE) = -e-4 to U(1) = -e-28 (where it is the investor's payof) [2 marks]