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Company A has the following revenue, cost and net cash flow per share End of Year 1 End of Year 2 $150 with prob. 0.2 $1
Posted: Mon Apr 25, 2022 8:35 am
by answerhappygod
- Company A Has The Following Revenue Cost And Net Cash Flow Per Share End Of Year 1 End Of Year 2 150 With Prob 0 2 1 1 (1.15 MiB) Viewed 29 times
Company A has the following revenue, cost and net cash flow per share End of Year 1 End of Year 2 $150 with prob. 0.2 $120 with prob. 0.2 Net Cash Flow $70 with prob. 0.8 $50 with prob. 0.8 Suppose that the
company decides to fully hedge its cash flow risk through USAG RiskSharing. USGA charges a premium with a 20% loading on its expected payments to
Company A. Such premium is paid in the beginning of year 1.
Company A's cost of capital is 10%. How much is the premium that USAG is charging?