a. A gold mining company extracts gold with a cost of $800 per oz. It expects...

  

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a. A gold mining company extracts gold with a cost of $800 per oz. It expects to extract 5000 oz of gold in 6 months. The spot price of is $1780 dollar per oz. What is the 6 month futures price given interest rate is 2% p.a. and storage cost is $30 per oz during the period, paid at the beginning of the contract. (2 marks) b. You want to hedge against this risk using 6-month gold futures. Draw the payoff diagrams of all positions for the hedging process. (5 marks) c. What happens if gold price surges to 1900 at maturity of the futures contract? What happens if gold price drops to 1600? Show the payoffs of all positions. (6 marks) d. Draw the payoff diagram of your counterparty. (2 marks) a. A gold mining company extracts gold with a cost of $800 per oz. It expects to extract 5000 oz of gold in 6 months. The spot price of is $1780 dollar per oz. What is the 6 month futures price given interest rate is 2% p.a. and storage cost is $30 per oz during the period, paid at the beginning of the contract. (2 marks) b. You want to hedge against this risk using 6-month gold futures. Draw the payoff diagrams of all positions for the hedging process. (5 marks) c. What happens if gold price surges to 1900 at maturity of the futures contract? What happens if gold price drops to 1600? Show the payoffs of all positions. (6 marks) d. Draw the payoff diagram of your counterparty. (2 marks)