A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently

sells for $300 an ounce, but the price is extremely volatile and could fall as low as $280 or rise as

high as $320 in the next month. The company will bring 1000 ounces to market in the next

month.

(a)

If the firm remains unhedged, what will the firms total revenues be for gold prices of

$280, $300, and $320 an ounce.

(b)

The futures price of gold for 1-month-ahead delivery is $301. What will be the firms

total revenues at each gold price if the firm enters a 1-month futures contract to deliver

1000 ounces of gold?

(c)

What will total revenues be if the firm buys a 1-month put option to sell gold for $300 an

ounce. The put option costs $2 per ounce.