Question: Return to the WTM case in the chapter where it is said that WTM could hedge its exposure to the price risk of copper by

Return to the WTM case in the chapter where it is said that WTM could hedge its exposure to the price risk of copper by purchasing a call option for $336 that would give it the right to buy one ton of copper in three months for $6,000. The spot price of a ton of copper is $6,000 and the risk-free rate is 5 percent.

a. What is the annual volatility of the price of copper?

b. What would be the call premium to buy a ton of copper in three months at $5,900? Explain the difference with the call premium to buy a ton of copper in three months at $6,000.

c. What should the supplier of copper do if it wants to hedge its price risk to deliver a ton of copper in three months at $6,000?

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