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Question 12 25 pts Company A has the following revenue, cost, and net cash flow per share: At the end of the year Revenue $150 $45 with prob. 0.25 Cost $80 with prob. 0.75 $105 with prob. 0.25 Net Cash Flow $70 with prob. 0.75 Suppose that the company decides to fully hedge its cash flow risk at the year-end and that an actuarially fair premium is charged on the hedging program. The discount rate is 10%. 1. How much would the actuarially fair premium be at the beginning of the year? 2. Suppose the price of the hedging program is not actuarially fair. Please provide a reason why the company may still use it hedge the cash flow risk? Upload Choose a File Question 12 25 pts Company A has the following revenue, cost, and net cash flow per share: At the end of the year Revenue $150 $45 with prob. 0.25 Cost $80 with prob. 0.75 $105 with prob. 0.25 Net Cash Flow $70 with prob. 0.75 Suppose that the company decides to fully hedge its cash flow risk at the year-end and that an actuarially fair premium is charged on the hedging program. The discount rate is 10%. 1. How much would the actuarially fair premium be at the beginning of the year? 2. Suppose the price of the hedging program is not actuarially fair. Please provide a reason why the company may still use it hedge the cash flow risk? Upload Choose a File