About short term volatility in revenues

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A gold mining rm is concerned about short term volatility in its revenues. Gold currently sells for $650 an ounce, but the price is extremely volatile and could fall as low as $630 or rise as high as $680 in the next month. The company will bring 1,000 ounces to the market next month. (a) What will be total revenues if the rm remains unhedged for gold prices of $600, $630, and $680 an ounce? (b) The futures price of gold for delivery one month ahead is $660. What will be the rm's total revenues at each gold price if the rm enters into a one month futures contract to deliver 1,000 ounces of gold? (c) What will total revenues be if the rm buys a one month put option to sell gold for $650 an ounce? The put option costs $45 per ounce.

Reference no: EM131905677

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