Compute the estimated profit in 1 year if telco sells

Assignment Help Financial Management

Reference no: EM132025352

Telco installs telecommunications equipment uses copper wire from a company called Wirco as an input. Wirco sells copper wire for the price of copper plus $5. For planning purposes, Telco assigns fixed revenue of $6.20 for each unit of wire it uses. The 1-year continuously compounded interest rate is 6%.

In your answers, at a minimum consider copper prices in 1 year of $0.80, $0.90, $1.00, $1.10, and $1.20.

One-year option prices for copper are shown in the table below.

Strike

0.95

1.00

Call

$0.0646

$0.0376

Put

$0.0178

$0.0376

a) Compute the estimated profit in 1 year if Telco sells a put option with strike of $0.95. Draw the profit diagram.

b) Compute the estimated profit in 1 year if Telco sells collars with the following strikes: $0.95 for the put and $1.00 for the call option. Draw the profit diagram.

Reference no: EM132025352

Questions Cloud

How old are you today : On your tenth birthday, you recieved 100 which you invested at 4 percent interest, compounded annually. The investment is now worth 180.09.

There are two main oxygenation events : There are two main oxygenation events: Great oxygenation event (2.3-2.1 bya) and late Precambrian oxygenation (~700 mya).

The land on which the facility would be built will be sold : The up front cost of the facility at t=0 is $10 million. The facility will be depreciated on a straight line basis to 0 over 5 years

Services at a national and global level : How can you compare the financing of health services at a national and global level?

Compute the estimated profit in 1 year if telco sells : Compute the estimated profit in 1 year if Telco sells a put option with strike of $0.95. Draw the profit diagram.

Explain the rationale for statement : As a child, you have been told to wait for up to an hour after eating before going swimming. Explain the rationale for this statement. (SNS PNS)

What is the current market closing price : What is the Beta of IBM? Is that a high or a low Beta?What is the current market closing price?

Natural warming phase : Do you believe that human activities are contributing to climate change or that the earth is going through a natural warming phase?

How much depreciation did you claim this year : a. How much depreciation did you claim this year? b. Under the new category, how much depreciation would be claimed?

User Account

All Pages