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A mining company is planning a bond issue. Its financial advisors have advised the company to issue gold options along with the bonds. Each option
A mining company is planning a bond issue. Its financial advisors have advised the company to issue gold options along with the bonds. Each option would allow the bond holder to buy 10 ounces of gold at $484 per ounce. The options have a maturity of 1 year and are European. Below is some data: Spot gold price Maturity of Option Interest Rate Futures price for Gold Maturity of Futures Contract Volatility of Gold 435.74 1 year 6.0%, continuously compounded 442.00 12 year 22% per year a)[5 points] Using the futures information, extract the convenience yield for gold. Bold b)[ 5 points) Write down the formula that you wouiu use to price the call option and make sure you identify the values for all inputs. Then compute the price of the option
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