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Suppose that you expect to produce and sell 100000 tons of

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Reference no: EM13573833

On the London Metals Exchange the price for copper to be delivered in one year is $1,600 a ton. Note: Payment is made when the copper is delivered. The risk-free interest rate is 5 percent and the expected market return is 12 percent.

a. Suppose that you expect to produce and sell 100,000 tons of copper next year. What is the PV of this output? Assume that the sale occurs at the end of the year.

b. If copper has a beta of 1.2, what is the expected price of copper at the end of the year? What is the certainty-equivalent price?

Reference no: EM13573833

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