Calculate the initial investment-final liquidation value

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Hekinan Corporation has bought 4000 barrels of Brent crude oil $112.63 a barrel. It has sold call options on 2000 barrels of oil, with exercise price $110, for $5.50 each; and options on 1000 barrels of oil, exercise price $115, for $1.80 each. All options will expire after 35 days and then Hekinan will liquidate this position. Hekinan expects the price of Brent crude after 35 days to be $114.50 a barrel. It uses 10% as the discount rate, with continuous compounding. Calculate the following the initial investment ($437,720), the final liquidation value ($449,000) and NPV of this investment ($6995.10). Show solutions.

Reference no: EM13918381

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