Business, 28.05.2021 04:30, beverlyamya

Suppose a risk-neutral power plant needs 10,000 tons of coal for its operations next month. It is uncertain about the future price of coal. Today it sells for $60 a ton but next month it could be $54 or $66 next month with equal probability. And suppose coal can be stored for a month at the cost of $2 per ton. How would the alternative of being able to buy coal at today's prices and store it affect the amount the power plant would be willing to pay for an option to buy coal next month at today's prices

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Suppose a risk-neutral power plant needs 10,000 tons of coal for its operations next month. It is un...