May you explain all parts, thanks Suppose that you...
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May you explain all parts, thanks
Suppose that you are the owner of a chemicals factory. Crude oil is an important input in your business. The costs of your products depend heavily on the market price of crude oil, which is volatile. The current price of crude oil is $80. Analysts expect that the price of crude oil will either go up or down by 25% next year. The market interest rate is 5%. What is the price of a 1-year call option on the price of crude oil if the strike price is: (a) $80? (b) $90? (c) $100? Suppose that you are the owner of a company that extracts oil. Crude oil is an important output in your business. The price of your product is the market price of crude oil, which is volatile. The current price of crude oil is $80. Analysts expect that the price of crude oil will either go up or down by 25% next year. The market interest rate is 5%. What is the price of a 1-year put option on the price of crude oil if the strike price is: (a) $80? (b) $90? (c) $100
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