On June 15, 2020 a mid-size crude oil producer (OP) in west Texas had a contract...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
On June 15, 2020 a mid-size crude oil producer (OP) in west Texas had a contract to sell 25,000 barrels of crude oil to refinery RR on SEP 17, 2020; NOV 17, 2020; JAN 17. 2021; and MAR 17, 2021. Every sale is for 25,000 barrels. OP decided to hedge these sales with WTI NYMEX futures. Every NYMEX WTI futures is for 1,000 barrels. According to OP calculations the correlation between the crude oil spot price and the WTI futures price was .96 while the spot price standard deviation was .5 and the futures price standard deviation was .8. OP opened the minimum variance hedge ratio hedge such that each of the trades above will be hedged with futures for delivery one month later. On June 15, 2920 the futures prices/barrel for the delivery months used in the hedge were: $70; $ 71; $72; $73, respectively. 1 Use a time table to show the spot and futures markets positions that OP opened on June 15, 2020. 2. In the same table show OP's activities on each one of the contract selling dates given that on those dates the respective spot prices were: $65, $65.50; $64.50 and $66 and the respective futures prices for the delivery months used in the hedge where: $69; $68; $70 and $71. 3 calculate the average price per barrel without the hedge, and with the hedge. On June 15, 2020 a mid-size crude oil producer (OP) in west Texas had a contract to sell 25,000 barrels of crude oil to refinery RR on SEP 17, 2020; NOV 17, 2020; JAN 17. 2021; and MAR 17, 2021. Every sale is for 25,000 barrels. OP decided to hedge these sales with WTI NYMEX futures. Every NYMEX WTI futures is for 1,000 barrels. According to OP calculations the correlation between the crude oil spot price and the WTI futures price was .96 while the spot price standard deviation was .5 and the futures price standard deviation was .8. OP opened the minimum variance hedge ratio hedge such that each of the trades above will be hedged with futures for delivery one month later. On June 15, 2920 the futures prices/barrel for the delivery months used in the hedge were: $70; $ 71; $72; $73, respectively. 1 Use a time table to show the spot and futures markets positions that OP opened on June 15, 2020. 2. In the same table show OP's activities on each one of the contract selling dates given that on those dates the respective spot prices were: $65, $65.50; $64.50 and $66 and the respective futures prices for the delivery months used in the hedge where: $69; $68; $70 and $71. 3 calculate the average price per barrel without the hedge, and with the hedge.
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Firwood Manufacturing Co. had a contract to sell General Tire 55 model 1225 postcure inflators (PCIs). PCIs are $30,000 machines used by General Tire in its manufacturing process. The contract was...
-
Texas Oil Co. transports crude oil to its refinery where it is processed into main products gasoline, kerosene, and diesel fuel, and by-product base oil. The base oil is sold at the split-off point...
-
The spot price of oil is $54 per barrel and the the storage costs per barrel are a constant proportion, 2%, of the spot price. The risk-free interest rate is 5% per annum continuously compounded. If...
-
A disadvantage of many profitsharing remuneration plans is that: Group of answer choices They align shareholders' and managers' objectives. They do not incentivize management to change their...
-
If net income is an unbiased and noisy measure of manager performance, less noise enables a more efficient compensation contract. Explain why. How can accountants reduce noise in net income when net...
-
Northern Corporation, the investment banking company, often has extra cash to invest. Suppose Northern buys 800 shares of Andy, Inc., stock at $54 per share. Assume Northern expects to hold the Andy...
-
EuroVirtuals EPS Sensitivity to Exchange Rates (A). On January 15, 2015 the Swiss National Bank (SNB) decided to unpeg the franc, which was fixed at CHF1.20/ since 2011. Suppose the SNB was to...
-
Using the same data found in Exercise 6.22, assume the company uses the FIFO method. Required: Prepare a schedule of equivalent units, and compute the unit cost for the month of December. In Exercise...
-
12. 66% of adults cannot name a supreme court justice. You randomly select five adults and ask each if they can name any of the justices. The random variable represents the number of adults who...
-
For this exercise you don't have to go out and buy a large bag of dice, just open the dice-roller application at random.org and roll 60 virtual dice. Sixty is the most you can roll at once in the...
-
Why is occupational health and safety in a restaurants kitchen important
-
How do globalization and multiculturalism influence diversity and inclusion practices within multinational corporations, and what cross-cultural competencies are essential for effective...
-
What mechanisms allow individuals or groups to translate their influence into tangible power within complex socio-political landscapes ?
-
What are the intricate dynamics of social influence within tightly-knit communities, and how do they shape decision-making processes and individual behaviors?
-
what ways do team dynamics influence the emergence of informal leaders and "gatekeepers" within a team, and how do these roles affect information flow, decision-making, and team efficacy ?
-
Explain organizational culture and its power to influence organizational practices, and give an example of how the power of culture influences internal workplace dynamics. Must include at least one...
-
Perfect Pet Collar Company makes custom leather pet collars. The company expects each collar to require 1.95 feet of leather and predicts leather will cost $3.40 per foot. Suppose Perfect Pet made 90...
-
Using the parallel-axis theorem, determine the product of inertia of the area shown with respect to the centroidal x and y axes. 6 in. 9 in. 9 in- 4.5 in. in. 4.5 in.
-
How do teams work?
-
Task characteristics, reward systems, and team size are all ____________ that can make a difference in group effectiveness. (a) group processes (b) group dynamics (c) group inputs (d) human resource...
-
When a new team member is anxious about questions such as Will I be able to influence what takes place? the underlying issue is one of ____________. (a) relationships (b) goals (c) processes (d)...
Study smarter with the SolutionInn App