Revised Shockley, Chapter 12 Problems:
Problem 1:
The price is different from the futures price due to rounding error of $0.04. Using nodal
Problem 2:
With the 2% convenience yield, the prices in the tree do not change, but the probability of
The expected future value of the spot price is:
Problem 3:
Year:
4
Spot Crude:
$82.00
Barrels Produced:
100,000
Revenue:
Less Extr. Cost:
Less Sev./Royalty (25%):
Operating Income:
Less Fixed Costs:
Profit Before Tax:
Tax (35%):
Free Cash Flow:
Problem 4:
Problem 5:
0
1
2
3
4
$45.00
$63.8595
$90.6230
$128.6031
$182.5007
$31.7115
$45.0000
$63.8595
$90.6230
$22.3471
$31.7115
$45.0000
$15.7480
$22.3471
$11.0976
The price agrees with the futures price within a few cents of rounding error.
Problem 6:
0
1
2
3
4
0
890,150.6250
2,194,871.2500
4,046,401.1250
6,673,909.1250
890,150.6250
2,194,871.2500
Problem 7:
0
1
2
3
4
916,463.1362
3,300,633.3906
4,710,032.4607
4,154,951.4191
0
261,760.8840
998,662.2567
0
0
0
0
The value agrees with the DCF analysis within $1,100.00 of rounding error
Problem 8:
0
1
2
3
4
Problem 9:
0
1
2
3
4