1 imagine that segal air entered into a forward contract, Ask an Expert

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1. Imagine that Segal Air entered into a forward contract (forward price of $105) for half of their 2017 fuel needs and bought calls (strike of $120 and premium of $10). Produce the table and graph for the price per barrel the airlines will pay as a function of the 2017 spot price. We already considered these individually (refer to slide 80).

2. Consider the payoff from the above structure (half of their fuel needs hedged with forwards and half hedged by purchasing calls) when they are financially settled. Produce a table and graph of this payoff per barrel (refer to slide 80).

3. The board asks you to explore an alternative. SegalAir buys a call (strike of $120, premium of $10) and sells a call (strike of $140, premium of $5). Produce a table and graph of the payoff for this structured assuming it is financially settled.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92055083

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