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The ABC Oil Company is exposed to the fluctuations of the crude oil price. The risk profile of its net income for the current fiscal year as a function of the crude oil price (spot on March 15, 2001) is given in the graph. The company wishes to make its income independent of the crude oil price using the call options with various exercise prices as indicated in cells [I3:J9]. The contract size of the option is 1000 barrel of crude oil and the net income is in thousands.
A) What is the appropriate hedging strategy using call options?
B) What is the cash flow of the hedging strategy? Indicate whether or not the cash flows will be positive or negative for the ABC company.
C) What is the level of income with the hedging strategy?
6. Grammar, Mechanics, Punctuation, and Formatting Weight: 5% The student has many grammar, mechanics punctuation, and formatting errors. The student has some grammar, mechanics, punctuation, and formatting errors. The student has no or few grammar, mechanics, punctuation, and formatting errors. 7. Feedback Reflection Weight: 15% The student did not submit a feedback reflection. The student lists the feedback and partially explains how the feedback was used to improve the draft. The student partially describes how they will use the feedback in future written communications. The student lists the feedback and fully explains how the feedback was used to improve the draft. The student fully describes how they will use the feedback in future written communications.
4. Conclusion Paragraph(s) Weight: 10% The student did not submit conclusion paragraph(s). The student submitted partially completed conclusion paragraph(s). The student submitted conclusion paragraph(s). 5. In-Text Citations, and Reference Weight: 10% The student did not include sources, in-text citations, or a References page. The student partially included sources, in-text citations, and/or a References page. The student included 4-6 sources, in-text citations, and a References page.
2. Body Paragraphs Weight: 35% The student did not submit body paragraphs. The student submitted partially completed body paragraphs. The student submitted body paragraphs. 3. Counter Perspective(s) Weight: 10% The student did not address counter perspective(s). The student partially addressed counter perspective(s). The student addressed counter perspective(s).
Grading for this activity will be based on the following rubric: POINTS: 150 WRITING ACTIVITY 3: ROUGH DRAFT Criteria No Credit 0% Partial Credit 50% Full Credit 100% 1. Introduction The student did not The student submitted partially completed introduction paragraph(s) and/or a thesis statement or revisions were not made per feedback received in writing activity 2. The student Paragraph(s)/ submit introduction submitted Thesis Statement paragraph(s) or a introduction Weight: 15% thesis statement. paragraph(s) and a thesis statement.
Briefly discuss what this paired trade suggests to you about the manager's implied view as to: (1) the general direction of future interest rate movement.
How could you mitigate the negative size bias induced by the long-only constraint? How would you attempt to look as good as possible by this measure? Would this always coincide with the best interests of the manager?
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Letter Writing - The Unhappy Customer. Create a letter in response to this unhappy customer. Write a letter to Collin introducing yourself
Calculate the rate of return on the price-weighted index of four stocks at the end of day 1 and calculate the rate for return on a value-weighted index of four stocks for the two-day period starting on day 0 and ending on day 2.
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