Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. bike tech is a company that produces bicycles. the

Bike Tech is a company that produces bicycles. The company has determined that their profits...

90.2K

Verified Solution

Question

Accounting

Bike Tech is a company that produces bicycles. The company has determined that their profits per sheet of steal is given by P(ST) = 50,000 40ST where ST is the price of one sheet of steal six months from today. The continuously compounded risk-free rate is 5%. To minimize its exposure in six months, the company is considering to hedge with one of the following instruments: i) Sell 40 long forward contracts priced at 1200 ii) Buy 40 long call options with strike of 1300 and cost of 24.26

a) if the company hedges with 40 long forward contracts, the minimum profit is ____, the maximum profit is ____ and breakeven point(s) is(are) ____.

b) if the company hedges with 40 long call options, the minimum profit is ____, the maximum profit is ____, and breakeven point(s) is(are) ____.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students