Options for Question (E) ii-v are "the options hedge", 'the future hedge" , "no hedge"

option for question (E) i is "avoid" "choose"

It is March and Alberta Oil Refinery Ltd (AOR) has enough crude oil in inventory to continue refinery operations until September. AOR expects to need to purchase 400,000 barrels of oil in September. Management at AOR is concerned about oil price volatility. Futures contracts for September delivery are available with a futures price of $110 per barrel. Options contracts with a strike price of $110 and expiration in September are also available; puts cost $25 and calls cost $18. Complete parts (a) through (e). (Round your answers to the nearest whole number.) e. AOR has asked for your advice regarding hedging. Discuss how the each of the following individually will influence your advice. i. AOR does not expect to have much cash available between April and August. In this case, AOR should the futures hedge. ii. AOR thinks that a drop in oil prices will occur if the economy goes into recession. There is a 33% chance this will happen. In a recession, demand for AOR's refined oil products will drop by half. In this case, AOR should choose the iii. AOR will experience extreme financial distress costs if its net revenues in August do not cover the net costs of oil purchased then. AOR net revenues are estimated to be $60 million. In this case, AOR should choose the iv. AOR will experience extreme financial distress costs if its net revenues in August do not cover the net costs of oil purchased then. AOR net revenues are estimated to be $50 million. In this case, AOR should choose v. AOR can pass along any price increases in oil by increasing the prices of its refined products. In this case, AOR should choose It is March and Alberta Oil Refinery Ltd (AOR) has enough crude oil in inventory to continue refinery operations until September. AOR expects to need to purchase 400,000 barrels of oil in September. Management at AOR is concerned about oil price volatility. Futures contracts for September delivery are available with a futures price of $110 per barrel. Options contracts with a strike price of $110 and expiration in September are also available; puts cost $25 and calls cost $18. Complete parts (a) through (e). (Round your answers to the nearest whole number.) e. AOR has asked for your advice regarding hedging. Discuss how the each of the following individually will influence your advice. i. AOR does not expect to have much cash available between April and August. In this case, AOR should the futures hedge. ii. AOR thinks that a drop in oil prices will occur if the economy goes into recession. There is a 33% chance this will happen. In a recession, demand for AOR's refined oil products will drop by half. In this case, AOR should choose the iii. AOR will experience extreme financial distress costs if its net revenues in August do not cover the net costs of oil purchased then. AOR net revenues are estimated to be $60 million. In this case, AOR should choose the iv. AOR will experience extreme financial distress costs if its net revenues in August do not cover the net costs of oil purchased then. AOR net revenues are estimated to be $50 million. In this case, AOR should choose v. AOR can pass along any price increases in oil by increasing the prices of its refined products. In this case, AOR should choose