Question
a. How can a forward contract on a stock with a particular delivery price and delivery date be created from options?(30 marks) b. It is
a.How can a forward contract on a stock with a particular delivery price and delivery date be created from options?(30 marks)
b.It is July 2016. A mining company has just discovered a small deposit of gold. It will take six months to construct the mine. The gold will then be extracted on a more or less continuous basis for one year. Futures contracts on gold are available on the New York Mercantile Exchange. There are delivery months every two months from August 2016 to December 2017. Each contract is for the delivery of 100 ounces. Discuss how the mining company might use futures markets for hedging.(40 marks)
c.Suppose you own 5,000 shares that are worth $25 each. How can put options be used to provide you with insurance against a decline in the value of your holding over the next four months?(30 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started