Description Question 3 (5 Marks) Your third client works for a large Queensland manufacturing company that is concerned about rises in electricity prices They would like to lock in the price for the next 6 months to fulfill current orders with an estimated requirement of 150,000 megawatt hours at $35 per megawatt hour (ie a $5,250,000 commitment) The contract will be established today (19 th February 2021) and should be in place until at least September 19 th , 2021 Assume that the storage costs for electricity are equal to the convenience yield ( u y ) Step 1 Choose an appropriate futures contract From the snapshot of QLD Energy futures prices as of February 19 th provided, determine which contract should be chosen stating the day of expiry for the contract Calculate the theoretical value for the contract Discuss any differences between the theoretical value you have calculated and the listed value Step 2 Determine the number of futures contracts required Determine the initial value of the futures contract and the number of contracts that should be purchased to hedge this position and whether they should be buy or sell positions Step 3 Provide the ending balances for two (2) potential future scenarios Determine the financial outcome for your client assuming two different potential future outcomes 1) an ending B Q price of $40 and 2) an ending BQ price of $30 Include the cost of the hedge Wales BLU $ Conditional forcell 27 O D E H M N HQM2022 May 2011 Calls Puts CODE OFFER (5 153 OPEN INTEREST VOLUME SETTLE PRICE (1 0 STRIKE 151 HD (52 CODE OFF STEE SEITE HOMZ0003100 000 000 670 33 00 HOM2000OOP 000 000 HOM20003400C 000 38 34 00 HOM00034000 000 000 HOM2000 1500 000 35 00 HOME0001500P DOD 1000 HOM2000 000 000 0 00 36,00 HOM2600 36001 000 DO HOM200037000 0 00 000 0 128 3700 HOM2000170 000 000 100 HOM200038000 000 DO 38 00 HOM1001 000 000 D LAST 3825 Latest QLD Emers Price 5) SPI Futures Calculations BAB Futures Information BAB Futures Calculations Energy Futures information Energy 2 W feneral 3 Merge Center Conditional com OEM 27 Tommige 10 0 C Baie Load Quarter Futures G M N New South Wales Victoru Od South Australia New South Wale Queensland CODE CONTRACT BID 15 OFFERS LASTA TRADES SETTE 1510 VOLUME CODE CONTRACT BID (51) OFFERS NETH LAST TRADE (5) Base quarter Base quarter 41000 BOH2021 0121 10 400 000 300 0 41000 40 000 SINHA 0121 19000 40 500 BOM20 0221 34000 000 32 500 33 500 33 00 ENMO 4220 41400 43 000 0221 34250 0 00 34250 BQ02021 0321 33250 34750 BN2021 15 000 600 ASSO 45 500 DO22021 38 000 DO 3 000 45 500 36000 30 000 INZ2021 0421 45 500 18750 25 2 54000 20 55 30 BOH2022 0122 48 500 49500 EINH 0122 54 050 56700 42 000 095 BOM2022 32 000 0222 32 500 SPI Futures Calculations BAB Futures Information 2 46 32810 NM22 42 500 43000 BAB Futures Calculations Energy Futures Information

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Description Question 3 (5 Marks) Your third client works for a large Queensland manufacturing company that is concerned about rises in electricity prices. They would

Description Question 3 (5 Marks)

Your third client works for a large Queensland manufacturing company that is concerned about rises in electricity prices. They would like to lock in the price for the next 6 months to fulfill current orders with an estimated requirement of 150,000 megawatt hours at $35 per megawatt hour (ie. a $5,250,000 commitment). The contract will be established today (19^th February 2021) and should be in place until at least September 19^th, 2021. Assume that the storage costs for electricity are equal to the convenience yield (u=y)

Step 1 Choose an appropriate futures contract.

From the snapshot of QLD Energy futures prices as of February 19^th provided, determine which contract should be chosen stating the day of expiry for the contract. Calculate the theoretical value for the contract. Discuss any differences between the theoretical value you have calculated and the listed value.

Step 2 Determine the number of futures contracts required.

Determine the initial value of the futures contract and the number of contracts that should be purchased to hedge this position and whether they should be buy or sell positions.

Step 3 Provide the ending balances for two (2) potential future scenarios.

Determine the financial outcome for your client assuming two different potential future outcomes: 1) an ending B Q price of $40 and 2) an ending BQ price of $30. Include the cost of the hedge. image text in transcribed

Wales BLU- $ Conditional forcell 27 O D E H M N HQM2022 May 2011 Calls Puts CODE OFFER (5 153 OPEN INTEREST VOLUME SETTLE PRICE (1 0 STRIKE 151 HD (52 CODE OFF STEE SEITE HOMZ0003100 000 000 . 670 33.00 HOM2000OOP 000 000 HOM20003400C 000 38 34.00 HOM00034000 000 000 HOM2000 1500 000 . 35.00 HOME0001500P DOD 1000 HOM2000 000 000 0.00 36,00 HOM2600 36001 000 DO HOM200037000 0.00 000 0 128 3700 HOM2000170 000 000 100 HOM200038000 000 DO 38.00 HOM1001 000 000 D LAST 3825 Latest QLD Emers Price 5) SPI Futures Calculations BAB Futures Information BAB Futures Calculations Energy Futures information Energy 2. W feneral 3. Merge Center % Conditional com OEM 27 Tommige 10 0 C Baie Load Quarter Futures G M N New South Wales Victoru Od South Australia New South Wale Queensland CODE CONTRACT BID 15 OFFERS LASTA TRADES | | | SETTE 1510 VOLUME CODE CONTRACT BID (51) OFFERS NETH LAST TRADE (5) Base quarter Base quarter 41000 BOH2021 0121 10.400 000 300 0 41000 40 000 SINHA 0121 19000 40.500 BOM20 0221 34000 000 32.500 33.500 33 00 ENMO 4220 41400 43 000 0221 34250 0.00 34250 BQ02021 0321 33250 34750 BN2021 15 000 600 ASSO 45.500 DO22021 38.000 DO 3 000 45.500 36000 30 000 INZ2021 0421 45.500 18750 25 2 54000 20 55 30 BOH2022 0122 48 500 49500 EINH 0122 54 050 56700 42.000 095 BOM2022 32.000 0222 32.500 SPI Futures Calculations BAB Futures Information 2.46 32810 NM22 42 500 43000 BAB Futures Calculations Energy Futures Information