Question: A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $300 an ounce, but the price is extremely volatile and

A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $300 an ounce, but the price is extremely volatile and could fall as low as $280 or rise as high as $320 in the next month. The company will bring 1,000 ounces to the market next month.

a. What will be total revenues if the firm remains un-hedged for gold prices of $280, $300, and $320 an ounce?

b. The future price of gold for delivery one month ahead is $301. What will be the firm’s total revenues at each gold price if the firm enters into a one-month futures contract to deliver 1,000 ounces of gold?

c. What will total revenues be if the firm buys a one-month put option to sell gold for $300 an ounce? The put option costs $2 per ounce.

Step by Step Solution

★★★★★

3.48 Rating (171 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Gold Price Per Ounce 280 300 320 ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

35-B-C-F-R-A-M (16).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

A gold mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,600 an ounce, but the price is extremely volatile and could fall as low as $1,520 or rise as...

A gold mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,450 an ounce, but the price is extremely volatile and could fall as low as $1,330 or rise as...

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the...

Hey, could you please help me out asap with this? 5. a. (8 points) The current price of KD Industries stock is $20. In the next year the stock price will either go up by 20% or go down by 20%. KD...

Could you answer the following finance question please? 5. a. (8 points) The current price of KD Industries stock is $20. In the next year the stock price will either go up by 20% or go down by 20%....

#3. A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $300 an ounce, but the price is extremely volatile and could fall as low as $280 or rise as...

Please help explain part B. I got 1.30 million for $1115 and $1195 which is correct but for some reason it is incorrect for the $1275. I've got several wrong answers and explanation on chegg so...

A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,200 an ounce, but the price is extremely volatile and could fall as low as $1,100 or rise as...

Consider the titration of 50.0 mL of 1.0 M glycine hy-drochloride [(H3NCH2COOH)CI], with 1.0 M NaOH. For +H3NCH2COOH, Ka for the carboxylic acid group is 4.3 X 10-3 and Kb, for the amino group is 6.0...

answer the following questions. (a) Calculate lim f(x). X2 (b) Draw the figure for f(x). (c) Define a similar function F(x) to f(x) where we no longer have any discontinuity. (d) (bonus) Re-do part...

7.59 Determine the step response v o ( t ) to v s = 18 u ( t ) V in the circuit of Fig. 7.124. Vs 602 ww +1 ww 302 4 1.5 HV

Which organizutional structure issue is most apparent at Authentic Brew based on the Mating ent Pckai Deptent Shpng Denartment Tap Ro acatis Selesa Prmtn Pursteng Bing ewing Coordination of...

The Solar World manufacturing facility in Portland, Oregon, is the largest producer of silicon- based solar cells in the United States. The manufacturing process begins with the melt crystallization...

A firm signs a 52-week long contract with a worker where the firm promises to provide 1-week paid training at some point during his employment. The worker can quit anytime and find another job at his...

Fred Campbell asked for a transfer from the Shipping department to the MKT department. His request was approved. Update the database to reflect this change.In the answers document, the whole...

Tim O'Hare is the distribution manager for Consolidated, Inc. Major builders can order from Consolidated, Inc. two products: door hardware and casters. Since the construction industry goes through...

Which of the following likely results in a permanent increase in a nations productive capacity? (A) A decline in the birth rate (B) Declining adult literacy rates (C) Widespread relocation of...

13. The Muck and Slurry merger has fallen through (see Section 31-2 ). But World Enterprises is determined to report earnings per share of $2.67. It therefore acquires the Wheelrim and Axle Company....

12. As treasurer of Leisure Products, Inc., you are investigating the possible acquisition of Plastitoys. You have the following basic data: Leisure Products Plastitoys Earnings per share $ 5.00 $...

11. Suppose you obtain special informationinformation unavailable to investorsindicating that Backwoods Chemicals stock price is 40% undervalued. Is that a reason to launch a takeover bid for...

BP's stock price fell when the first news reports of the Deepwater Horizon oil spill aired. This is an example of Undiversifiable risk Unsystematic risk Systematic risk Market risk

I have the correct answers listed below except for part B. Please show work for PART B. Warrants Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock...

You currently have $ 6 , 4 0 0 ( Present Value ) in an account that has an interest rate of 7 % per year compounded annually ( 1 times per year ) . You want to withdraw all your money when it reaches...