What is the expected average temperature in february

Reference no: EM132173098

Question - Suppose that hot degree day (HDD) weather futures for February 2019 are trading for F = 1015, and the trading units are $20 times the hot degree day (HDD index), and based on a benchmark of 65 degrees. There are 28 days in February 2019.

a. Based on the futures price of 1015, what is the expected average temperature in February 2019?

b. For each degree above or below average, calculate and report the profit/loss on each contract.

Suppose that for each degree below average temperature in February 2019, University heating costs would increase by $14,500, and for each degree above average temperature, University heating cost would decrease by $14,500.

c. Explain in a complete, detailed essay how UM-Flint could use HDD weather futures contracts to hedge its weather risk, including the number of contracts it would take and the exact position (long or short) it would take. Show its position graphically using a fully labeled (with title) futures payoff diagram (show only one side of the contract, not both sides)

d. If the average temperature in February 2019 turns out to be 34 degrees, calculate the settlement price of the HDD contract (index value), the profit/loss per contract for University, and the total profit/loss on the futures contracts for University, and the energy cost savings for University

e. If the average temperature in February 2019 turns out to be 27.0 degrees, calculate the settlement price of the HDD contract (index value), the profit/loss per contract for University, and the total profit/loss on the futures contracts for University, and the additional energy costs for the University.

Reference no: EM132173098

Questions Cloud

Create testing strategy for testing nonfunctional properties : Assume that you are still designing the online course management system that you worked on in previous assignments. Most of the major requirements.

Build relationships with employees in an organization : How do leaders effectively use transformational leadership to build relationships with employees in an organization?

Leadership effectiveness in an organization : What characteristics detract from leadership effectiveness in an organization?

Most in leadership in an organization : What personal characteristics matter the most in leadership in an organization?

What is the expected average temperature in february : There are 28 days in February 2019. Based on the futures price of 1015, what is the expected average temperature in February 2019

Legal risks for business domestically and internationally : Apply the risk management process to mitigate the legal risks for a business domestically and internationally.

Impact on company excellence : Recommend how to determine which processes to improve to ensure you have the most impact on company excellence.

Impacted your knowledge in operations management : Explain how operations management has impacted your knowledge in operations management,

What steps might you take to gain the cooperation : Hypothetically speaking, you are assigned to a committee of three to decide on a dress code for Campbellsville University Staff and Faculty.

User Account

All Pages