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Healthy Fish,Inc.is considering the purchase of a batch of experimental fish fry for $10,000.The fry will mature and be ready for the market in a year.A government agency guarantees the hardiness of the new breed-it will make a one-for-one same-size replacement if any fish should die of infections during the first year when reared according to clearly specified instructions.Healthy Fish expects to spend another $42,000 to raise the fish.Suppose that Healthy Fish can enter into a futures contract to sell the entire batch of fish for $60,000,the contract will cost $3,000.What is the opportunity cost of capital for this investment? Should Healthy Fish make the investment? If Healthy Fish cannot set up a futures contract,what is its opportunity cost of capital? Should it invest in this case? Assume that the current interest rate on AAA corporate bonds is 6.25%,and that the historical rate of return on the stock exchange is 10%.
Standard Deviation
A statistical measure of the dispersion or variability of a set of data points around the mean, commonly used to quantify the amount of variation.
Average Rate
The mean value of a set of rates, capturing the central tendency over a specified period or dataset.
Probability
A measure of the likelihood that an event will occur, expressed as a number between 0 and 1.
Variance of Returns
A measure of the dispersion or spread of returns on an investment, indicating its volatility.
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