Question
WIDGETCO produces widgets. Each widget generates $460 in revenue and requires one ounce of gold as an input. WIDGETCO plans to produce and sell one
WIDGETCO produces widgets. Each widget generates $460 in revenue and requires one ounce of gold as an input. WIDGETCO plans to produce and sell one widget in exactly one year. The c.c. risk-free rate is zero percent.
WIDGETCO is considering hedging their gold exposure with a call option. The premium on a one-year call option on gold with a strike of $420 per ounce is $8.77. If the price of gold is $450 per ounce in one year, what is WIDGETCO's hedged profit?
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Finance For Executives Managing For Value Creation
Authors: Gabriel Hawawini, Claude Viallet
6th Edition
1473749247, 9781473749245
