Suppose that on October 16, 2007 a firm loses a lawsuit and has to pay $100 million
Question:
Suppose that on October 16, 2007 a firm loses a lawsuit and has to pay $100 million within 9 months. Currently it has no money to pay, so it decides to sell a piece of equipment. Although the equipment could go for up to $150 million, the firm is desperate and is willing to take much less so as to make the lawsuit payment. A buyer comes up, who offers to buy the equipment at a significant discount and will pay for it in six months. The firm's CFO thinks that the deal might work if they enter into a futures contract or a forward contract. (a) Using only the information available on October 16, 2007 in Table 6.11, what is the least that the firm should accept, if it decides to enter into a futures contract? (b) Using only the information available on October 16, 2007 what is the least that the firm should accept, if it decides to enter into a forward contract
(a)If an entity decides to enter into a future contract using only the information available on 16 October 2007, what is the minimum that the entity should accept?
(b) If an entity decides to enter into a forward contract using only the information available on 16 October 2007, what is the minimum quantity that the entity should accept?
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