Pacific Airline decides to use a collar to hedge the oil price risk. The lower strike is
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Question:
Pacific Airline decides to use a collar to hedge the oil price risk. The lower strike is 55 and the higher strike is 60. The options mature in 6 months and the annualized 6-month interest rate is 6% (p.a.). Below is the relevant put and call premiums:
(a) What is the cost of the collar position?
(b) As Pacific Airline is your client, you have become the counterparty. What is the oil price in 6 months such that you will break-even?
Related Book For
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
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