A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $2,100 an ounce, but the price is extremely volatile and could fall as low as $2,000 or rise as high as $2,200 in the next month. The company will bring 1,400 ounces of gold to the market next month. Question: What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,400 an ounce? The put option costs $48 per ounce.

A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $2,100 an ounce, but the price is extremely volatile and could fall as low as $2,000 or rise as high as $2,200 in the next month. The company will bring 1,400 ounces of gold to the market next month. Question: What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,400 an ounce? The put option costs $48 per ounce.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 30P

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A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $2,100 an ounce, but the price is extremely volatile and could fall as low as $2,000 or rise as high as $2,200 in the next month. The company will bring 1,400 ounces of gold to the market next month. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,400 an ounce? The put option costs $48 per ounce.
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