A large dental lab plans to purchase 1,000 ounces of gold in 1 month. Assume that gold prices
can be $1,000, $1,200, or $1,400 an ounce.
a. What will total expenses be if the firm purchases call options on 1,000 ounces of gold with an
exercise price of $1,080 an ounce? The options cost $15 per ounce.
b. What will total expenses be if the firm purchases call options on 1,000 ounces of gold with an
exercise price of $1,040 an ounce? These options cost $25 per ounce.

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Plan to purchase 1,000.00 ounces of gold Gold price S1,200.00 Gold price @ Exercise price (a) S1,080.00 S 1,400.00 Option cost (a s1 Exercise price (b)S1,040.00 Option costS 15.00 lper ounce 25.00 lper ounce