Ashanti Gold Mine Inc. Ashanti Gold Mine Inc., 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 volatile and could fall as low as £1,100 or rise as high as £1,400 in the next month. The CFO is concerned about the impact of this volatility on its revenue and wants to do something about its intended supply to the market. The company will bring 1,000 ounces to the market next month. (a) What will be the total revenues if the firm remains unhedged for gold prices of £1,000, £1,200, and £1,400 an ounce? (b) The futures price of gold for 1-month-ahead delivery is £1,080. What will be the firm's total revenues at each gold price if the firm enters a 1-month futures contract to deliver 1,000 ounces of gold? (c) What will total revenues be if the firm buys a 1-month out option to sell gold for £1,080 an ounce? The puts cost £12 per ounce.
Ashanti Gold Mine Inc.
Ashanti Gold Mine Inc., 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 volatile and could fall as low as £1,100 or rise as high as £1,400 in the next month. The CFO is concerned about the impact of this volatility on its revenue and wants to do something about its intended supply to the market. The company will bring 1,000 ounces to the market next month.
(a) What will be the total revenues if the firm remains unhedged for gold prices of £1,000, £1,200, and £1,400 an ounce?
(b) The futures price of gold for 1-month-ahead delivery is £1,080. What will be the firm's total revenues at each gold price if the firm enters a 1-month futures contract to deliver 1,000 ounces of gold?
(c) What will total revenues be if the firm buys a 1-month out option to sell gold for £1,080 an ounce? The puts cost £12 per ounce.
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