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A gold mining firm is concerned about short-term volatility in its revenues. Gold currently sells for...

A gold mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $2,300 an ounce, but the price is extremely volatile and could fall as low as $2,250 or rise as high as $2,350 in the next month. The company will bring 1,200 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) $2,250, (ii) $2,300, and (iii) $2,350 an ounce?

i. At $2,250 an ounce   
ii. At $2,300 an ounce
iii. At $2,350 an ounce

b. The futures price of gold for delivery 1 month ahead is $2,320. What will be the firm’s total revenues if the firm enters into a 1-month futures contract to deliver 1,200 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 $1,200 an ounce? The put option costs $108 per ounce.

Total revenues   

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jeff jeffy answered 1 year ago
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