# Question

Using the information in Table 4.9 about Scenario C:

a. Compute σtotal revenue when correlation between price and quantity is positive.

b. What is the correlation between price and revenue?

•XYZ mines copper, with fixed costs of $0.50/lb and variable cost of $0.40/lb.

•Wirco produces wire. It buys copper and manufactures wire. One pound of copper can be used to produce one unit of wire, which sells for the price of copper plus $5. Fixed cost per unit is $3 and noncopper variable cost is $1.50.

•Telco installs telecommunications equipment and uses copper wire fromWirco as an input. For planning purposes, Telco assigns a fixed revenue of $6.20 for each unit of wire it uses.

The 1-year forward price of copper is $1/lb. The 1-year continuously compounded interest rate is 6%. One-year option prices for copper are shown in the table below.17

In your answers, at a minimum consider copper prices in 1 year of $0.80, $0.90, $1.00, $1.10, and $1.20.

a. Compute σtotal revenue when correlation between price and quantity is positive.

b. What is the correlation between price and revenue?

•XYZ mines copper, with fixed costs of $0.50/lb and variable cost of $0.40/lb.

•Wirco produces wire. It buys copper and manufactures wire. One pound of copper can be used to produce one unit of wire, which sells for the price of copper plus $5. Fixed cost per unit is $3 and noncopper variable cost is $1.50.

•Telco installs telecommunications equipment and uses copper wire fromWirco as an input. For planning purposes, Telco assigns a fixed revenue of $6.20 for each unit of wire it uses.

The 1-year forward price of copper is $1/lb. The 1-year continuously compounded interest rate is 6%. One-year option prices for copper are shown in the table below.17

In your answers, at a minimum consider copper prices in 1 year of $0.80, $0.90, $1.00, $1.10, and $1.20.

## Answer to relevant Questions

Using the information in Table 4.9 about Scenario C: a. Using your answer to the previous question, use equation (4.7) to compute the variance-minimizing hedge ratio. b. Run a regression of revenue on price to compute the ...Compute estimated profit in 1 year if XYZ buys collars with the following strikes: a. $0.95 for the put and $1.00 for the call. b. $0.975 for the put and $1.025 for the call. c. $1.05 for the put and $1.05 for the call. Draw ...Suppose the S&P 500 index futures price is currently 1200. You wish to purchase four futures contracts on margin. a. What is the notional value of your position? b. Assuming a 10% initial margin, what is the value of the ...Suppose the spot $/¥ exchange rate is 0.008, the 1-year continuously compounded dollar-denominated rate is 5% and the 1-year continuously compounded yendenominated rate is 1%. Suppose the 1-year forward exchange rate is ...Suppose that 10 years from now it becomes possible for money managers to engage in time travel. In particular, suppose that a money manager could travel to January 1981, when the 1-year Treasury bill rate was 12.5%. a. If ...Post your question

0