3. INFLATION AND ASSET RETURNS II: (10 points) Continuing from problem #2, now suppose you are approached by your raw materials supplier. They are looking to reduce risk throughout their supply chain, and would like to increase the certainty of their cashflows. Toward this end, they offer you the opportunity to enter into a three-year, fixed price contract that will lock in today's prices of raw material inputs for the next three years. You estimate one-half of your total production costs come from raw materials, while the remaining one-half are due to labor costs which will remain unaffected by this contract offer. At the expiration of the three year contract, raw material prices will re-adjust to their true market values (i.e., any lost prices increases will be instantaneously added to prices - a potentially large jump). Assuming you are a risk-neutral, profit maximizing investor, what is the value of this fixed-price contract offer to the firm?botab 3. INFLATION AND ASSET RETURNS II: (10 points) Continuing from problem #2, now suppose you are approached by your raw materials supplier. They are looking to reduce risk throughout their supply chain, and would like to increase the certainty of their cashflows. Toward this end, they offer you the opportunity to enter into a three-year, fixed price contract that will lock in today's prices of raw material inputs for the next three years. You estimate one-half of your total production costs come from raw materials, while the remaining one-half are due to labor costs which will remain unaffected by this contract offer. At the expiration of the three year contract, raw material prices will re-adjust to their true market values (i.e., any lost prices increases will be instantaneously added to prices - a potentially large jump). Assuming you are a risk-neutral, profit maximizing investor, what is the value of this fixed-price contract offer to the firm?botab