Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Calculate the number of futures contracts and the needed position to hedge a one-year in the future purchase of gasoline. The needed gasoline will

  image text in transcribed 


Calculate the number of futures contracts and the needed position to hedge a one-year in the future purchase of gasoline. The needed gasoline will be five million gallons and the current price is $5 per gallon. The one-year heating oil futures contract is for 42,000 gallons and has a delivery price of $4.9 per gallon. The coefficient of correlation between gasoline and heating oil is 0.95. The standard deviations for gasoline and heating oil have been 10% and 8% respectively.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

To calculate the number of futures contracts and the needed position to hedge a oneyear future purchase of gasoline we need to consider several factor... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investment Analysis and Portfolio Management

Authors: Frank K. Reilly, Keith C. Brown

10th Edition

538482109, 1133711774, 538482389, 9780538482103, 9781133711773, 978-0538482387

More Books

Students also viewed these Finance questions

Question

( 5 % ) Prove or disprove that the halting problem is NP - hard.

Answered: 1 week ago

Question

What is a make-or-buy decision?

Answered: 1 week ago

Question

Explain the term knowledge- based pay system.

Answered: 1 week ago