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Firm BestHockeyPucks needs to buy rubber to manufacture their hockey pucks. Specifically, they need to buy 4 tons of rubber for next winter. January 2018

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Firm BestHockeyPucks needs to buy rubber to manufacture their hockey pucks. Specifically, they need to buy 4 tons of rubber for next winter. January 2018 (T = 3/4) at an uncertain price. One ton of rubber can be used to manufacture 5000 pucks, each sold for $1.8. The manufacturing has a fixed cost of $6000 per ton, plus the cost of rubber. Suppose that today rubber sells for $l, 800/ton and the interest rate is r = 10% per annum, continuously compounded. BestHockeyPucks buys 2 call options with strike K = 1.800 (the option allows to buy rubber for $1.800/ton) and maturity T at an upfront cost of S100 each. Write down a mathematical formula for the resulting net profit of BestHockeyPucks at T = 3/4, including both the profit from manufacturing pucks and from the call options, as a function of rubber price at T and sketch the corresponding diagram. In addition to the above call options, BostHockeyPucks dccides to enter into a forward contract to purchase 2 ton of rubber at T at a forward price of $1.900/ton. Plot the resulting net profit diagram of BestHockeySticks (pucks 4- forward + calls). Label important points on the graph

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