Gasworks, Inc., has been approached to sell up to 5 million gallons of gasoline in three months
Question:
Gasworks, Inc., has been approached to sell up to 5 million gallons of gasoline in three months at a price of $3.65 per gallon. Gasoline is currently selling on the wholesale market at $3.30 per gallon and has a standard deviation of 58 percent. If the risk-free rate is 6 percent per year, what is the value of this option?
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Since the contract is to sell up to 5 million gallons it is a call option so we need to value the co...View the full answer
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Related Book For 
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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