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Suns Corporation, located in Gilbert, Arizona, USA, manufactures components for high-performance race bikes. A major input for those components is carbon fiber. It is December 18th, 2020 and Steve Nash, the head of risk management at Suns Corp, is considering how to best hedge the risk generated by unexpected fluctuations in the price of carbon fiber. Currently (December 18th, 2020), the spot price of carbon fiber is $25 per pound and the company is planning to purchase 100,000 pounds of carbon fiber on March 18th, 2021. Specifically, Steve wants to implement a strategy that minimizes the price risk (as measured by the variance) of the carbon fiber position. He knows that futures contracts on carbon fiber are not available and, therefore, decides to use copper futures, given that a) they are very liquid and b) their price is fairly well correlated with the price of carbon fiber. He looks at his computer screen and observes the quotes reported below: notice that the price quotes are in $ per pound, while the contract size is 25,000. Assume Steve can trade at the last recorded price. Further, assume that the futures curve identified by the price quotes below will not shift until the end of March 2021. View By Sector Exchange FUTURES Amazon Intel Google 3237.36 51.03 1761.39 NVIDIA Trading Charts.com -2.34% -0.89% 0.27% Free Quotes & Charts for Commodities/Futures / ABSMESSZISZICLESLISTE HOME COMMODITY CHARTS COMMODITY QUOTES | MY MENU | FUTURES NEWS | PREMIUM FEATURES || FOREX CHARTS FOREX QUOTE: Metal Futures Prices Commodity Futures Price Quotes For Copper High Grade (Globex) (COMEX) REFRESH (Price quotes for COMEX Copper High Grade (Globe) delayed at least 10 minutes as per exchange requirements) DATA Click for Current Session Prior Day + CATTLE / HOGS Chart Opt's Open High Low Last Time Set Chg Vol Set Op Int + CURRENCY Cash 3.5540 3.5540 3.5540 00.00 3.5540 0.0160 + FOOD / FIBER Dec 16 3.5380 nia + GRAIN / OILSEED +INDEX Dec 20 3.5760 3.5940 3.5760 3.5940 06:36 0.0400 5 Dec 17 3.5540 2204 + INTEREST Jan 21 3.5610 3.5955 3,5590 3.5920 06:34 0.0385 118 3693 + METAL 3.5535 CPU Dec 17 - Popular Markets Feb 21 3.5645 3.5955 3.5645 3.5940 05:11 Dec 17 0.0365 19 3.5575 2234 Call Pu Copper (0) COMEX Gold (0) COMEX Mar 21 3.5645 3.6035 3.5615 3.6010 08:37 0.0420 19431 3.5590 162373 Call Put Dec 17 Paladium (e) NYMEX Platinum (e) NYMEX Apr 21 3.5685 3.5705 3.5685 3.5705 20:57 0.0090 4 947 3.5615 Dec 16 Call Put Silver (e) COMEX May 21 3.5665 3.6060 3.5665 3.6025 06:38 0.0395 349 3.5630 34362 Cal Put + Less Popular Dec 17 + OIL / ENERGY Jun 21 3.5700 3.5725 3.5700 3.5725 20:58 Dec 16 0.0085 4 3.5640 748 Call Put Jul21 3.5705 3.6045 3.5705 3.5930 04:42 Dec 17 0.0285 105 3.5645 21402 Call Put Quick Links Aug 21 3.5750 3.5750 3.5750 3.5750 20:56 0.0090 5 3.5660 689 Dec 16 Call Put Chart/Quote Menu Sep 21 3.5710 3.6045 3.5710 3.6010 Dec 17 08:34 0.0370 3.5640 11268 Call Put My Chart/Quote Menu Oct21 3.5750 3.5750 3.5750 3.5750 20.58 0.0105 3 3.5645 504 Call Put - 119 In order to implement the hedging, Steve collects some market statistics, reported below Summary Statistics of Price Changes - Annualized Mean Std Dev Beta Alpha Carbon fiber Spot 1.15 8.34 0.32 0.35 Copper Spot 0.12 0.60 0.79 -0.02 Copper Futures 0.13 0.69 0.85 -0.025 Note: Alpha and Beta are computed with respect to the S&P500 index Carbon fiber Spot Copper Spot Copper Futures Correlation Matrix of Price Changes - Annualized Carbon fiber Spot Copper Spot Copper Futures 1 0.468 1 0.589 0.947 1 a) What hedging strategy should Suns Corp. follow? Why? Note: you are not required to work out the number of contracts in this part of the question. b) What CME copper futures contract (i.e., what maturity) should Steve Nash trade in? Explain your answer c) How many contracts does Nash need to buy or sell in order to achieve the hedging objective outlined above? Round to the nearest integer. Please show all your workings. d) Given your answers in a), b) and c) above, summarize the hedging strategy for Suns Corp.. I.e., specify what needs to be done and when in order to open and close the hedge. e) If the spot price of carbon fibre is $27.5 per pound on March 18th, 2021, what is the effective cost of carbon fibre for Suns Corp? Ignore the impact of daily marking to market. Round to 4 decimal digits at each step. Please show all your workings. QUESTION 71-3-2-2-2-1 marks Suns Corporation located in the Arizona, USA. manufacturer ce bikes. A major input for those comparer December 2009 Nash, the headed risk management Sun Coop, is considering how so het hele them by unexpected lectures in the price of carbon fiber Certy (December price of carbon fiber is $25 per pound and the company is planning to purchase 100.000 de carbon fiber Manch , 221. Specifically, www the price raskas med by the voice of the carbon fiber positief son cartofler are waited therefore they are very liquid and their price is fairly well with the price of the Head this computer screen and the quotes para bolo que per pound while the contract is 25.000 Annectade at the latte Further, that the fute curve identified by the period of March 2011 FUTURES Trading Aeroco Metal In order to implement the hodging Steve collects come marketic, reported Summary Statistics of Price Change - Annie Mem Sad A Carbon fiber Sped LES 3:34 00 Copper Spor 0.12 00 Copperware 0.13 Note: Alplund Bets are compete with respect to the Sa Pscinder P9 Correlation Matris of Pier Change And Caranfiler Spel Copper Spot Copper Carbon fiber Spor 1 Copper Sport Copper Future 09 * What hoping trey should use Cep follow? Why? Note: you are not required to work out the number of in this part of the What CME copper futures contract what matty Steve d'Esplan you wer How many do Nascolto buy din mechi deve liebevend to the resinger. Meanwall your Give your wees in al Dance the leading SSC specify whated to be done and when in de open and the c) of the price olchonfe 27.5 pund March 11, what the cartofhre for Sus Core the impact of daily marking to market edia digits at each step. Please show all your working In order to implement the hedging, Steve collects some market statistics, reported below Summary Statistics of Price Changes - Annualized Mean Std Dev Beta Alpha Carbon fiber Spot 1.15 8.34 0.32 0.35 Copper Spot 0.12 0.60 0.79 -0.02 Copper Futures 0.13 0.69 0.85 -0.025 Note: Alpha and Beta are computed with respect to the S&P500 index Carbon fiber Spot Copper Spot Copper Futures Correlation Matrix of Price Changes - Annualized Carbon fiber Spot Copper Spot Copper Futures 1 0.468 1 0.589 0.947 1 View By Sector Chat FUTURES Amazon Intel Google 3237.36 51.03 1761.39 Trading Charts.com NVIDIA -0.89% 0.27% Free Quotes & Charts for Correnocitles / Futures ABLISSEMENT SUR HOME COMMODITY CHARTS COMMODITY QUOTES MY MENU FUTURES NEWS PREMIUM FEATURES | FOREX CHARTS FOREX QUOTE: Metal Futures Prices Commodity Futures Price Quotes For Copper High Grade (Globex) (COMEX) REFRESH Exchange DATA (Price quotes for COMEX Copper High Grade Gibex) delayed at least 10 minutes as per exchange requirement Current Session Price Day +CATTLE/HOOS Open High LOW Last Time Set Chg Vol Opt's Set Op Int + CURRENCY Cash 3.5540 3.5540 3.5540 00:00 + FOOD / FIBER Dec 16 3.5540s" 0.0160 3.5380 nia + GRAIN / OILSEED + INDEX Dec 20 3.5760 3.5940 3.5760 3.5940 0536 0.0400 5 3.5540 2204 Dec 17 Call Put + INTEREST Jan 21 3.5610 35955 3,5590 3.5920 0534 0.0385 118 Dec 17 3.5535 3693 Cal Put + METAL - Popular Markets Feb 21 3.5645 3.5955 3.5645 3.5940 05:11, Dec 17 0.0365 19 3.5575 2234 Call Put Copper (0) COMEX Gold (e) COMEX Mar 21 3.5645 3.6035 3.5615 3.6010 08:37 Dec 17 0.0420 19431 3.5590 162373 Call Put Paladium (0) NYMEX Platinum (e) NYMEX Apr 21 3.5685 3.5705 3.5685 3.5705 2067 Dec 16 0.0090 4 3.5615 947 Call Put Silver(e) COMEX May 21 3.5665 3.6060 3.5665 3.6025 08.36 0.0395 Dec 17 3.5630 34362 Call Put + Less Popular OIL / ENERGY Jun 21 3.5700 3.5725 3.5700 3.5725 20:58 0.0085 4 Dec 16 3.5640 748 Call Pu Jul21 3.5705 3.6045 3.5705 3.5930 04:42 0.0285 105 3.5645 21402 Call Put Dec 17 Quick Links Aug 21 3.5750 3.5750 3.5750 3.5750 20:56 0.0090 5 3,5660 689 Call Put Chart Quote Menu Dec 10 Sep 21 3.5710 3.6045 3.5710 3.6010 08:34 Dec 17 0.0370 119 3.5640 11268 Call Put My Chart/Quote Menu Oct21 3.5750 3.5750 3.5750 3.5750 20.50 0.0105 3 3.5645 504 Call Put 349 . d) Given your answers in a), b) and c) above, summarize the hedging strategy for Suns Corp.. I.e., specify what needs to be done and when in order to open and close the hedge. e) If the spot price of carbon fibre is $27.5 per pound on March 18th, 2021, what is the effective cost of carbon fibre for Suns Corp? Ignore the impact of daily marking to market. Round to 4 decimal digits at each step. Please show all your workings. Suns Corporation, located in Gilbert, Arizona, USA, manufactures components for high-performance race bikes. A major input for those components is carbon fiber. It is December 18th, 2020 and Steve Nash, the head of risk management at Suns Corp, is considering how to best hedge the risk generated by unexpected fluctuations in the price of carbon fiber. Currently (December 18th, 2020), the spot price of carbon fiber is $25 per pound and the company is planning to purchase 100,000 pounds of carbon fiber on March 18th, 2021. Specifically, Steve wants to implement a strategy that minimizes the price risk (as measured by the variance) of the carbon fiber position. He knows that futures contracts on carbon fiber are not available and, therefore, decides to use copper futures, given that a) they are very liquid and b) their price is fairly well correlated with the price of carbon fiber. He looks at his computer screen and observes the quotes reported below: notice that the price quotes are in $ per pound, while the contract size is 25,000. Assume Steve can trade at the last recorded price. Further, assume that the futures curve identified by the price quotes below will not shift until the end of March 2021. View By Sector Exchange FUTURES Amazon Intel Google 3237.36 51.03 1761.39 NVIDIA Trading Charts.com -2.34% -0.89% 0.27% Free Quotes & Charts for Commodities/Futures / ABSMESSZISZICLESLISTE HOME COMMODITY CHARTS COMMODITY QUOTES | MY MENU | FUTURES NEWS | PREMIUM FEATURES || FOREX CHARTS FOREX QUOTE: Metal Futures Prices Commodity Futures Price Quotes For Copper High Grade (Globex) (COMEX) REFRESH (Price quotes for COMEX Copper High Grade (Globe) delayed at least 10 minutes as per exchange requirements) DATA Click for Current Session Prior Day + CATTLE / HOGS Chart Opt's Open High Low Last Time Set Chg Vol Set Op Int + CURRENCY Cash 3.5540 3.5540 3.5540 00.00 3.5540 0.0160 + FOOD / FIBER Dec 16 3.5380 nia + GRAIN / OILSEED +INDEX Dec 20 3.5760 3.5940 3.5760 3.5940 06:36 0.0400 5 Dec 17 3.5540 2204 + INTEREST Jan 21 3.5610 3.5955 3,5590 3.5920 06:34 0.0385 118 3693 + METAL 3.5535 CPU Dec 17 - Popular Markets Feb 21 3.5645 3.5955 3.5645 3.5940 05:11 Dec 17 0.0365 19 3.5575 2234 Call Pu Copper (0) COMEX Gold (0) COMEX Mar 21 3.5645 3.6035 3.5615 3.6010 08:37 0.0420 19431 3.5590 162373 Call Put Dec 17 Paladium (e) NYMEX Platinum (e) NYMEX Apr 21 3.5685 3.5705 3.5685 3.5705 20:57 0.0090 4 947 3.5615 Dec 16 Call Put Silver (e) COMEX May 21 3.5665 3.6060 3.5665 3.6025 06:38 0.0395 349 3.5630 34362 Cal Put + Less Popular Dec 17 + OIL / ENERGY Jun 21 3.5700 3.5725 3.5700 3.5725 20:58 Dec 16 0.0085 4 3.5640 748 Call Put Jul21 3.5705 3.6045 3.5705 3.5930 04:42 Dec 17 0.0285 105 3.5645 21402 Call Put Quick Links Aug 21 3.5750 3.5750 3.5750 3.5750 20:56 0.0090 5 3.5660 689 Dec 16 Call Put Chart/Quote Menu Sep 21 3.5710 3.6045 3.5710 3.6010 Dec 17 08:34 0.0370 3.5640 11268 Call Put My Chart/Quote Menu Oct21 3.5750 3.5750 3.5750 3.5750 20.58 0.0105 3 3.5645 504 Call Put - 119 In order to implement the hedging, Steve collects some market statistics, reported below Summary Statistics of Price Changes - Annualized Mean Std Dev Beta Alpha Carbon fiber Spot 1.15 8.34 0.32 0.35 Copper Spot 0.12 0.60 0.79 -0.02 Copper Futures 0.13 0.69 0.85 -0.025 Note: Alpha and Beta are computed with respect to the S&P500 index Carbon fiber Spot Copper Spot Copper Futures Correlation Matrix of Price Changes - Annualized Carbon fiber Spot Copper Spot Copper Futures 1 0.468 1 0.589 0.947 1 a) What hedging strategy should Suns Corp. follow? Why? Note: you are not required to work out the number of contracts in this part of the question. b) What CME copper futures contract (i.e., what maturity) should Steve Nash trade in? Explain your answer c) How many contracts does Nash need to buy or sell in order to achieve the hedging objective outlined above? Round to the nearest integer. Please show all your workings. d) Given your answers in a), b) and c) above, summarize the hedging strategy for Suns Corp.. I.e., specify what needs to be done and when in order to open and close the hedge. e) If the spot price of carbon fibre is $27.5 per pound on March 18th, 2021, what is the effective cost of carbon fibre for Suns Corp? Ignore the impact of daily marking to market. Round to 4 decimal digits at each step. Please show all your workings. QUESTION 71-3-2-2-2-1 marks Suns Corporation located in the Arizona, USA. manufacturer ce bikes. A major input for those comparer December 2009 Nash, the headed risk management Sun Coop, is considering how so het hele them by unexpected lectures in the price of carbon fiber Certy (December price of carbon fiber is $25 per pound and the company is planning to purchase 100.000 de carbon fiber Manch , 221. Specifically, www the price raskas med by the voice of the carbon fiber positief son cartofler are waited therefore they are very liquid and their price is fairly well with the price of the Head this computer screen and the quotes para bolo que per pound while the contract is 25.000 Annectade at the latte Further, that the fute curve identified by the period of March 2011 FUTURES Trading Aeroco Metal In order to implement the hodging Steve collects come marketic, reported Summary Statistics of Price Change - Annie Mem Sad A Carbon fiber Sped LES 3:34 00 Copper Spor 0.12 00 Copperware 0.13 Note: Alplund Bets are compete with respect to the Sa Pscinder P9 Correlation Matris of Pier Change And Caranfiler Spel Copper Spot Copper Carbon fiber Spor 1 Copper Sport Copper Future 09 * What hoping trey should use Cep follow? Why? Note: you are not required to work out the number of in this part of the What CME copper futures contract what matty Steve d'Esplan you wer How many do Nascolto buy din mechi deve liebevend to the resinger. Meanwall your Give your wees in al Dance the leading SSC specify whated to be done and when in de open and the c) of the price olchonfe 27.5 pund March 11, what the cartofhre for Sus Core the impact of daily marking to market edia digits at each step. Please show all your working In order to implement the hedging, Steve collects some market statistics, reported below Summary Statistics of Price Changes - Annualized Mean Std Dev Beta Alpha Carbon fiber Spot 1.15 8.34 0.32 0.35 Copper Spot 0.12 0.60 0.79 -0.02 Copper Futures 0.13 0.69 0.85 -0.025 Note: Alpha and Beta are computed with respect to the S&P500 index Carbon fiber Spot Copper Spot Copper Futures Correlation Matrix of Price Changes - Annualized Carbon fiber Spot Copper Spot Copper Futures 1 0.468 1 0.589 0.947 1 View By Sector Chat FUTURES Amazon Intel Google 3237.36 51.03 1761.39 Trading Charts.com NVIDIA -0.89% 0.27% Free Quotes & Charts for Correnocitles / Futures ABLISSEMENT SUR HOME COMMODITY CHARTS COMMODITY QUOTES MY MENU FUTURES NEWS PREMIUM FEATURES | FOREX CHARTS FOREX QUOTE: Metal Futures Prices Commodity Futures Price Quotes For Copper High Grade (Globex) (COMEX) REFRESH Exchange DATA (Price quotes for COMEX Copper High Grade Gibex) delayed at least 10 minutes as per exchange requirement Current Session Price Day +CATTLE/HOOS Open High LOW Last Time Set Chg Vol Opt's Set Op Int + CURRENCY Cash 3.5540 3.5540 3.5540 00:00 + FOOD / FIBER Dec 16 3.5540s" 0.0160 3.5380 nia + GRAIN / OILSEED + INDEX Dec 20 3.5760 3.5940 3.5760 3.5940 0536 0.0400 5 3.5540 2204 Dec 17 Call Put + INTEREST Jan 21 3.5610 35955 3,5590 3.5920 0534 0.0385 118 Dec 17 3.5535 3693 Cal Put + METAL - Popular Markets Feb 21 3.5645 3.5955 3.5645 3.5940 05:11, Dec 17 0.0365 19 3.5575 2234 Call Put Copper (0) COMEX Gold (e) COMEX Mar 21 3.5645 3.6035 3.5615 3.6010 08:37 Dec 17 0.0420 19431 3.5590 162373 Call Put Paladium (0) NYMEX Platinum (e) NYMEX Apr 21 3.5685 3.5705 3.5685 3.5705 2067 Dec 16 0.0090 4 3.5615 947 Call Put Silver(e) COMEX May 21 3.5665 3.6060 3.5665 3.6025 08.36 0.0395 Dec 17 3.5630 34362 Call Put + Less Popular OIL / ENERGY Jun 21 3.5700 3.5725 3.5700 3.5725 20:58 0.0085 4 Dec 16 3.5640 748 Call Pu Jul21 3.5705 3.6045 3.5705 3.5930 04:42 0.0285 105 3.5645 21402 Call Put Dec 17 Quick Links Aug 21 3.5750 3.5750 3.5750 3.5750 20:56 0.0090 5 3,5660 689 Call Put Chart Quote Menu Dec 10 Sep 21 3.5710 3.6045 3.5710 3.6010 08:34 Dec 17 0.0370 119 3.5640 11268 Call Put My Chart/Quote Menu Oct21 3.5750 3.5750 3.5750 3.5750 20.50 0.0105 3 3.5645 504 Call Put 349 . d) Given your answers in a), b) and c) above, summarize the hedging strategy for Suns Corp.. I.e., specify what needs to be done and when in order to open and close the hedge. e) If the spot price of carbon fibre is $27.5 per pound on March 18th, 2021, what is the effective cost of carbon fibre for Suns Corp? Ignore the impact of daily marking to market. Round to 4 decimal digits at each step. Please show all your workings