Assume today is Sept 1, 2021. Company IMineGold is a gold mining company producing gold with plans to increase its size and valuation over the next few years. The company has invested in developing goldfields and commenced extracting gold and gold production from its underground mines. The company is confident that it will have an output of 100,000 ounces of gold on 1 March 2022 and is willing to sell this output amount on that day.

Following further information is available:

Profit margin is defined as (Revenue Cost of Goods Sold) / Revenue.

The cost of mining one ounce of gold is $1,420. The company has a target profit margin of 18%.

The minimum acceptable profit margin below which the company will have difficulties servicing its debt is 14%.

The spot price of gold on 1 Sept 2021 is $1,800.

The interest rate curve is flat and the risk-free interest rate for all maturities is 2% (cont. comp.).

The annual gold price volatility is estimated to be 15%.

The company regularly transacts with the ABC Bank which is available as a counterparty of forward and option contracts with gold as an underlying asset.

A. What would be the profit margin of IMineGold if the current spot price is used?

B. What is the gold price at which IMineGold achieves exactly its target rate?

C. What is the critical gold price for IMineGold?

D. What is the forward price for a contract expiring on 1 March 2022?