Ch. 4 HW Answers

Ch. 4 HW Answers - process of putting in the new sprinkler...

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Chapter 4 CA A1)   Juanita could use futures to hedge the price risk for oil prices if she expects the price of oil  to rise.  If purchased, a futures contract would secure the price of oil at the current price for an  unspecified time in the future.  Juanita would have to pay a premium to purchase this contract,  but she would be able to secure the lower fuel price at the later date. A2)   A double-triggered risk management plan could be employed in this circumstance if two  losses could occur.  A policy GWS could potentially take out would include a provision on the  loss that could occur during expansion to new areas and the loss that could occur during the 
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Unformatted text preview: process of putting in the new sprinkler system. If both the expansion and the new sprinkler system do not succeed and the company experiences losses on the two provisions, their policy can be executed. If only one of the provisions provides the company a loss, the policy cannot be employed. B) Year 1= -40,000 Year 2= 25,000 Year 3= 25,000 Year 4= 25,000 PV= 75,000/ (1.1)^4 = $51,226.01 PV Investment= 51,226.01-40,000 = 11,226.01 C) Y= 2.31 + .22X X=640,000/1000 = 640 Y= Number of derailments = 16.39...
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This note was uploaded on 04/08/2008 for the course FIN 381 taught by Professor Knowles during the Spring '08 term at Bryant.

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