A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,592 an ounce, but the price is extremely volatile and could fall as low as $1,512 or rise as high as $1,672 in the next month. The company will 1,000 ounces to the market next month.
a.) What will be the total revenues if the firm remains unhedged for gold prices of $1,512, $1,592, and $1,672.
b.) The futures price of gold for delivery one month ahead is $1,602. What will be the firm's total revenues at each gold price if the firm enters into a one-month futures contract to deliver 1,000 ounces of gold? (gold price per ounce is $1,512, $1,592, and $1,672).
c.) What will total revenues be fi the firm buys a one-month put option to sell gold for $1,592 an ounce? The put option costs $118 per ounce. (gold price per ounce is $1,512, $1,592, and $1,672).