Making up any shortfall in the spot market

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Reference no: EM131022710

The quantity of copper produced could be 10,000, 40,000 or 15,000 pounds with equal likelihood. The cash price could be $4, $6, or $11 per pound with equal likelihood. You could sell all or part of the forward now at $7 making up any shortfall in the spot market. You can only make transactions now or at the end of production. By looking at the risk, how much should you sell forward if the risk in the price and yield are independent of each other.

Reference no: EM131022710

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Making up any shortfall in the spot market : The quantity of copper produced could be 10,000, 40,000 or 15,000 pounds with equal likelihood. The cash price could be $4, $6, or $11 per pound with equal likelihood. You could sell all or part of the forward now at $7 making up any shortfall in the..

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