EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 24, Problem 11QP
a)
Summary Introduction
To compute: The total revenue when the company remains unhedged for the gold prices of $1520, $1600, and 1680 an ounce.
b)
Summary Introduction
To compute: The company’s future revenue when the company enters in to 1-month futures agreement to deliver 1000 ounces of gold.
c)
Summary Introduction
To compute: The total revenues when the company purchases a 1 month put option to vend gold for $1000 ounces of gold.
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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.
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.
a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $2,000, (ii) $2,100, and (iii) $2,200 an
ounce?
i.
At $2,000 an ounce
ii.
At $2,100 an ounce
ii.
At $2,200 an ounce
b. The futures price of gold for delivery 1 month ahead is $2,090. What will be the firm's total revenues if the firm enters
into a 1-month futures contract to deliver 1,400 ounces of gold?
Total revenues
A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,550 an ounce, but the price is
extremely volatile and could fall as low as $1,450 or rise as high as $1,650 in the next month. The company will bring 1,350 ounces of
gold to the market next month.
a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $1,450, (ii) $1,550, and (iii) $1,650 an ounce?
i.
At $1,450 an ounce
i.
At $1,550 an ounce
iii.
At $1,650 an ounce
b. The futures price of gold for delivery 1 month ahead is $1,570. What will be the firm's total revenues if the firm enters into a 1-month
futures contract to deliver 1,350 ounces of gold?
Total revenues
c. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,350 an ounce? The put option costs $37 per
ounce.
Total revenues
Chapter 24 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
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