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It's a warm evening in ancient Macedonia. The grapes will be ready for harvesting in three months. At this time, many winemakers will need to
It's a warm evening in ancient Macedonia. The grapes will be ready for harvesting in three months. At this time, many winemakers will need to buy barrels in order to make wine. You are a cooper, and you expect to have a supply of 100 barrels in three months. The current price of a barrel is 60 drachma. After consulting with your augur, you determine that the barrel price in 3 months will be either 100 or 40 drachma. You decide to try to cash in by negotiating the following contract with a local vineyard. You will give the winemaker a sum of drachma now. In return, three months from now, the winemaker will agree to purchase 100 barrels at 70 drachma per barrel if you wish. The risk-free interest rate is 2%, simple quarterly rate. What is the most you should be willing to pay the winemaker now to enter into this contract
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