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Consider the production of high - end electric bicycles ( e - bikes ) . You are a procurement manager for a company that manufactures
Consider the production of highend electric bicycles ebikes
You are a procurement manager for a company that manufactures these ebikes. The demand for the ebikes in the summer months June July, August is normally distributed with a mean of units and a standard deviation of units.
Your supplier offers two types of contracts for the lithiumion batteries needed in the ebikes:
Forward Contract: You can buy batteries at a fixed price of $ per battery.
Option Contract: You can pay an initial fee of $ per battery for the right to buy batteries at a strike price of $ per battery.
You also have the option to purchase on the spot market. The spot market price is forecasted to be normally distributed with a mean of $ and a standard deviation of $
The question is: How many lithiumion batteries should you purchase via forward contracts and option contracts?
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