User Account

All Pages

What is the optimal hedge ratio

Assignment Help Finance Basics
Reference no: EM132611764

A company will lose $50,000 for each 1 cent decrease in the price per gallon of jet fuel over the next two months. The company plans to hedge its exposure to jet fuel with heating oil futures. Jet fuel price changes have a 0.7 correlation with heating oil futures price changes. Jet fuel price changes have a standard deviation of $3 and price changes in heating oil futures have a standard deviation of $2. Each futures contract is on 25,000 gallons.

a) What is the optimal hedge ratio? What does this hedger ratio mean?

b) What is the company's exposure measured in gallons of the new fuel?

c) What position measured in gallons should the company take in heating oil futures?

d) How many heating oil futures should be traded?

e) Should the company take long or short futures positions? Why?

Reference no: EM132611764

Questions Cloud

What is diy weighted average cost of capital : The company's tax rate is 0.31. What is DIY's weighted average cost of capital?
Prepare the journal entry to record the interest received : The bonds are classified as amortized cost investments. Prepare the journal entry to record the interest received and the amortization for 2019 and for 2020
What is the income tax payable or refundable for the year : Does your company have a Deferred Tax Asset or Deferred Tax Liability, or both? If so, how much are they? What was the total Income Tax Expense for the year?
What is the average payment period : What is its average payment period? Assume a firm has a cash cycle of 73 days and an operating cycle of 127 days. What is its payable turnover?
What is the optimal hedge ratio : A company will lose $50,000 for each 1 cent decrease in the price per gallon of jet fuel over the next two months. The company plans to hedge its exposure
Which operating activities include cash outflows to : When preparing the operating section using the indirect method, common adjustments include all of the except? Operating activities include cash outflows to
Forward price and the initial value of the forward contract : A stock is expected to pay a dividend of $2 per share in 6 months. The stock price is $80, and the risk-free rate of interest is 6% per annum with continuous
Calculate the total cost that should have been recorded : Christine is paid $20 per hour. Overhead is applied based on $20 per direct labor hour. Cculate the total cost that should have been recorded
What the effect of a stock dividend is to : What The effect of a stock dividend is to? Common shareholders have all of the following rights except the right to? vote on company plans and investments.

Reviews

Write a Review

Finance Basics Questions & Answers

  Compute the following values and ratios for 2012 we provide

here are financial statements of batcha company.batcha companyincome statementfor the year ended december 31 2012net

  Assume the role of marketing manager select a product good

assume the role of marketing manager. select a product good or service that is sold in the united states and has sales

  How much does a share of preferred stock cost today

If the market requires a return of 4.3 percent on this investment, how much does a share of preferred stock cost today?

  Calculate value per share using corporate valuation model

Based on the DDM is the stock overvalued or undervalued and by how much? Based on the corporate valuation model is the stock overvalued or undervalued?

  Cooperate information factory and business dimensional

What is the difference when conduct the ETL with Cooperate information factory and business dimensional lifecycle?

  Which ratio is the best overall performance measure

When is it appropriate to use a trend analysis versus a common size analysis? Which ratio is the best overall performance measure? Why?

  Determine two goals one short term and one long term that

determine two goals one short term and one long term that you wish to achieveyou can make up fictional ones if you

  What is the incremental profit over the profit earned

At the price calculated in part a, what is the incremental profit over the profit earned before the introduction of the RoverPlus branded dog food?

  What would happen to bank profits

What would happen to bank profits if interest rates were to fall by 1 percentage point? You should report your answer in terms of the change in profit per $100 in assets.

  What is the expected capital gains yield

The next dividend payment by diesel Inc. will be $2.50 per share. The dividends are anticipated to maintain a growth rate of 5.75 percent , forever.

  Compute the current yield on bond

An investor must choose between two bonds: Bond A pays $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Compute the curre..

  Calculate the cost of a collar

(a) What is the forward price of gold with delivery in 3 months? (b) Calculate the cost of a collar, with 3 months to delivery, where the strike of all options used is 1620.126. The annual standard deviation of the gold price is 20%.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd