Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,550 an ounce, but the price is
extremely volatile and could fall as low as $1,450 or rise as high as $1,650 in the next month. The company will bring 1,350 ounces of
gold to the market next month.
a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $1,450, (ii) $1,550, and (iii) $1,650 an ounce?
i.
At $1,450 an ounce
i.
At $1,550 an ounce
iii.
At $1,650 an ounce
b. The futures price of gold for delivery 1 month ahead is $1,570. What will be the firm's total revenues if the firm enters into a 1-month
futures contract to deliver 1,350 ounces of gold?
Total revenues
c. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,350 an ounce? The put option costs $37 per
ounce.
Total revenues
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Transcribed Image Text:A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,550 an ounce, but the price is extremely volatile and could fall as low as $1,450 or rise as high as $1,650 in the next month. The company will bring 1,350 ounces of gold to the market next month. a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $1,450, (ii) $1,550, and (iii) $1,650 an ounce? i. At $1,450 an ounce i. At $1,550 an ounce iii. At $1,650 an ounce b. The futures price of gold for delivery 1 month ahead is $1,570. What will be the firm's total revenues if the firm enters into a 1-month futures contract to deliver 1,350 ounces of gold? Total revenues c. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,350 an ounce? The put option costs $37 per ounce. Total revenues
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