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Petrochemical Parfum (PP) is concerned about a possible increase in the price of heavy fuel oil, which is one of its major inputs. If PP
Petrochemical Parfum (PP) is concerned about a possible increase in the price of heavy fuel oil, which is one of its major inputs. If PP could use either options or futures contracts to protect itself against a rise in the price of crude oil, compute the payoffs in each case if the oil price were $70, $80, or $90 a barrel. Assume the current price of oil is $70 per barrel, the futures price is $80, and the option exercise price is $80. Oil Price per Barrel $70 Futures-Hedged Expense $ -10 Options-Hedged Expense 0 $80 $ 0 $90 $ -10 $ -10
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