Part 1 - You are an analyst for an airline. 1 year ago, the airline entered into an agreement that gave the airline the option, not the obligation, to purchase 1,000,000 gallons of jet fuel today for $1,250,000. You observe that market prices per gallon of jet fuel today is $1.50. Should you exercise your option to purchase the fuel?

Part 2 - Thanks to COVID-19 your airline has an abundance of jet fuel and you don’t have anywhere to store the new fuel (from the previous question) and will have to immediately sell the fuel to someone else. You will have to pay a storage facility to store the fuel for you for seven days before you can sell the fuel. The cost to store the fuel will be $300,000. Assuming that the price of jet fuel will not change in the next seven days and ignoring the time value of money, what is your decision now?

Answer rating: 100% (QA)

Part1 Price of fuel according to the option available 12500001000000 125 per gallon while the ma... View the full answer