Suppose a generator owner with marginal generatio costs of $35/MWh enters a swap contract to sell 800MWH at $50/MWh for hour t. It generates 900M in hour t, when the wholesale electricity price is $40/MWh. What is the profit from the forward contr:
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- Suppose the initial margin on heating oil futures is $20, 200, the maintenance margin is S 16, 500 per contract, and you establish a long position of 12 contracts today, where each contract represents 27,000 gallons. Tomorrow, the contract settles down 5.07 from the previous day's price. What is the maximum price decline on the contract that you can sustain without getting a margin call?Suppose that on June 5, a Japanese Yen future contract is purchased at the ¥ 123 per dollar (opening price). Contract is for $ 5,000. Initial margin level is 15% of the value of the contract, and maintenance level is %10 of the value of the contract. The future price is ¥ 120 per dollar on June 6. There will be 15% increase in future price on June 7 and 8% decline on June 8? What is the value of the actual margin at the end of the date June 8? (ASSUMPTION: As margin account reaches above the initial margin level, withdraw the amount above the initial margin level)Suppose that your company is planning to sell 1.25 million litres of fuel in two years. Thecurrent price of fuel is £1.60 per litre. a) Suppose there is a two-year heating oil futures contract available. The futuresprice is £1.63 per litre. How many contracts would you need to fully eliminate yourrisk exposure over the next two years? How many contracts would you need ifyour optimal hedging ratio was 0.75? What position in these contracts would youtake today? Explain. b) Evaluate the outcomes of your hedging strategy if the price of fuel in two years is(1) £1.72 per litre, and (2) £1.58 per litre. In each case assume the heating oilfutures price to be equal to that of the fuel. Comment on your results.
- Your storage firm has been offered $95,400 in one year to store some goods for one year. Assume your costs are $96,700, payable immediately, and the cost of capital is 8.4%. Should you take the contract? The NPV Will Be $______ (Round to the nearest cent)A farmer shorts cocoa futures for 500 tons at RM6,000 per ton. The exchange requires him to post RM300,000 as the initial margin, and sets the maintenance margin at RM250,000. At what price change the margin call level will be triggered? What is the margin call price?Your factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be $5.06 million per year. Your upfront setup costs to be ready to produce the part would be $7.97 million. Your discount rate for this contract is 8.1%. a. What is the IRR? b. The NPV is $5.05 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?
- You trade in two types of options. First, you purchase 7 call option contracts on the Euro with an exercise price of 1.25. Second, you sell 8 put option contracts on the Euro with an exercise price of 1.22. The fees/prices on the contracts are $.04 (calls) and $.03 (puts). Forward Rates for the Euro are 1.210-11 $/E. If contract sizes for Euros are 125,000 options per contract and the final price of Euros is 1.40. $/E, how much profit/loss have you made from participation in options?As a significant player in the oil and gas industry, GasCo may take account a gas swap contract calling for the exchange of 1 m3 of gas at the end of each year for a period of 3 years. In this case, the discount factors for maturities of 1, 2 and 3 years are 0.98, 0.94 and 0.89. In most cases, gas storage requires additional costs; the proportional storage costs equal 3% per year with annual compounding. Meanwhile, there will be no convenience yield on gas, and the current spot price takes place at $3 per m3. In this case, which party in the swap transaction is more exposed to credit risk over the life of the swap, a seller or a buyer? Briefly explain your answer.Your factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be$5.01milion per year. Your upfront selup costs to be ready to produce the part would be$7.97million. Your discount rate for this contract is8.1%. a. What is the IRR? b. The NPV is$4.92million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?
- A trader creates a SHORT STRADDLE for GBP/USD with a strike price of 1.3865. The call option premium on GBP is 0.019 USD. The put option premium is 0.024 USD. One option contract represents GBP 125,000. What is the net profit of the trader if GBP/USD = 1.3869 at expiry?A trader creates a LONG STRADDLE for GBP/USD with a strike price of 1.2457. The call option premium on GBP is 0.017 USD. The put option premium is 0.022 USD. One option contract represents GBP 125,000. What is the net profit of the trader if GBP/USD = 1.2427 at expiry?Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.75 million per year. Your upfront setup costs to be ready to produce the part would be $7.91 million. Your discount rate for this contract is 7.8%. a. What is the IRR? b. The NPV is $4.38 million, which is positive, so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?