answer only part b please!!! the volatility was calculated and is provided on the screenshot. thank you!!
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answer only part b please!!! the volatility was calculated and is provided on the screenshot.
thank you!!
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A gold mining company has just catered into a contract to sell 10,000 troy ounces of gold, to be delivered in 6 months' time. The sale price is agreed by both parties to be based on the market price of gold on the day of delivery. At the time of signing the agreement, spot price for gold is USD $1,987.00/oz while the price of gold futures for delivery in 6 months' time is USD $1,985.00 oz. The production cost is $850/nz and the operating expenses are $370/az. This company has a total outstanding long-term debt of $300 million and should have at least $6,000,000 cash to pay its interest expenses in 6 months' time. Since the company views that the gold market will be very volatile over the next several months, it now considers hedging to minimize any potential financial distress problems, resulting from sharply declining gold prices. The gold mining company enters a position in an appropriate number of NYMEX Gold futures contracts. With each NYMEX Gold futures contract covering 100 troy ounces of gold, the gold mining company will be required to obtain a certain mumber of futures contracts You need to consider ONLY the following Three Scenarios. Scenario #1: Gold Spot Price Fell By 17% on Delivery Date Scenario #2: Gold Spot Price Fell By 6% on Delivery Date Scenario #3: Gold Spot Price Rose By 10% on Delivery Date Given only three scenarios outlined above, you need to decide the minimum number of futures contracts, so that the company can be sure that it will not face any financial distress in 6 months' time. To solve this problem, you have to calculate the net cash flow, which is the sum of the profits from the gold sales and the total gains/losses from the hedging position. In other words, you must show that the company should generate its badged cash flow always greater than its interest payments, regardless of future price changes. A) What is the minimum number of fitures contracts to hedge? Prove that this hedging position would eliminate any financial distress problems under three scenarios (10 points) If the gold spot price fell by 17%, they would need to short 51 contracts If the gold spot price fell by 6%, they would need to abort 41 contracts If the gold spot price rose by 10%, they would need to long 183 contracts. B) You now consider ONLY Two Scenarios. Scenario #1: Gold Spot Price Fell By 15% on Delivery Date Scenario #2: Gold Spot Price Rose By 15% on Delivery Date Propose the hedging strategy using options. Your strategy should include your option position including a strike price and estimated option premium, and number of options. You can use any option calculator available online. Assume the Interest Rate is 4% and Dividend Yield is zero For Volatility, you need to estimate it using the monthly return of GLD for the period of January 2010 through December 2022 's important that you choose a reasonable strike price (15 points) If the gold spot price falls 15% you would need to short 45 contracts If the gold spot price rises 15% you would need to long 155 future contracts volatility=15.87% interest rate 4% dividend yield=0 A gold mining company has just catered into a contract to sell 10,000 troy ounces of gold, to be delivered in 6 months' time. The sale price is agreed by both parties to be based on the market price of gold on the day of delivery. At the time of signing the agreement, spot price for gold is USD $1,987.00/oz while the price of gold futures for delivery in 6 months' time is USD $1,985.00 oz. The production cost is $850/nz and the operating expenses are $370/az. This company has a total outstanding long-term debt of $300 million and should have at least $6,000,000 cash to pay its interest expenses in 6 months' time. Since the company views that the gold market will be very volatile over the next several months, it now considers hedging to minimize any potential financial distress problems, resulting from sharply declining gold prices. The gold mining company enters a position in an appropriate number of NYMEX Gold futures contracts. With each NYMEX Gold futures contract covering 100 troy ounces of gold, the gold mining company will be required to obtain a certain mumber of futures contracts You need to consider ONLY the following Three Scenarios. Scenario #1: Gold Spot Price Fell By 17% on Delivery Date Scenario #2: Gold Spot Price Fell By 6% on Delivery Date Scenario #3: Gold Spot Price Rose By 10% on Delivery Date Given only three scenarios outlined above, you need to decide the minimum number of futures contracts, so that the company can be sure that it will not face any financial distress in 6 months' time. To solve this problem, you have to calculate the net cash flow, which is the sum of the profits from the gold sales and the total gains/losses from the hedging position. In other words, you must show that the company should generate its badged cash flow always greater than its interest payments, regardless of future price changes. A) What is the minimum number of fitures contracts to hedge? Prove that this hedging position would eliminate any financial distress problems under three scenarios (10 points) If the gold spot price fell by 17%, they would need to short 51 contracts If the gold spot price fell by 6%, they would need to abort 41 contracts If the gold spot price rose by 10%, they would need to long 183 contracts. B) You now consider ONLY Two Scenarios. Scenario #1: Gold Spot Price Fell By 15% on Delivery Date Scenario #2: Gold Spot Price Rose By 15% on Delivery Date Propose the hedging strategy using options. Your strategy should include your option position including a strike price and estimated option premium, and number of options. You can use any option calculator available online. Assume the Interest Rate is 4% and Dividend Yield is zero For Volatility, you need to estimate it using the monthly return of GLD for the period of January 2010 through December 2022 's important that you choose a reasonable strike price (15 points) If the gold spot price falls 15% you would need to short 45 contracts If the gold spot price rises 15% you would need to long 155 future contracts volatility=15.87% interest rate 4% dividend yield=0
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