# Question: Consider production ratios of 2 1 1 3 2 1 and 5 3 2 for oil

Consider production ratios of 2:1:1, 3:2:1, and 5:3:2 for oil, gasoline, and heating oil. Assume that other costs are the same per gallon of processed oil.

a. Which ratio maximizes the per-gallon profit if oil costs $80/barrel, gasoline is $2/gallon, and heating oil is $1.80/gallon?

b. Suppose gasoline costs $1.80/gallon and heating oil $2.10/gallon. Which ratio maximizes profit?

c. Which spread would you expect to be most profitable during the summer? Which during the winter?

a. Which ratio maximizes the per-gallon profit if oil costs $80/barrel, gasoline is $2/gallon, and heating oil is $1.80/gallon?

b. Suppose gasoline costs $1.80/gallon and heating oil $2.10/gallon. Which ratio maximizes profit?

c. Which spread would you expect to be most profitable during the summer? Which during the winter?

**View Solution:**## Answer to relevant Questions

Suppose you know nothing about widgets. You are going to approach a widget merchant to borrow one in order to short-sell it. (That is, you will take physical possession of the widget, sell it, and return a widget at time T ...a. What are some possible explanations for the shape of this forward curve? b. What annualized rate of return do you earn on a cash-and-carry entered into in December of Year 0 and closed in March of Year 1? Is your answer ...Suppose you are the counterparty for a lender who enters into an FRA to hedge the lending rate on $10m for a 90-day loan commencing on day 270. What positions in zero-coupon bonds would you use to hedge the risk on the FRA? Using the information in the previous problem, find the price of a 5-year coupon bond that has a par payment of $1,000.00 and annual coupon payments of $60.00. Suppose you observe the following continuously compounded zero-coupon bond yields: 0.06766 (1-year), 0.05827 (2-year), 0.04879 (3-year), 0.04402 (4-year), 0.03922 (5-year). For each maturity year compute the zero-coupon bond ...Post your question