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You are a producer of gold, and have expenses of 800 per ounce of gold produced. Assume that the cost of all other production-related expenses
You are a producer of gold, and have expenses of 800 per ounce of gold produced. Assume that the cost of all other production-related expenses is negligible, and that you will be able to sell all gold produced at the market price. In 1 year, the market price of gold will be 1 of 3 possible prices, corresponding to the following probability table: You hedge the price of gold by buying a 1-year put option with an exercise price of 900 per ounce. The option costs 100 per ounce now, and the continuously compounded interest rate is 6%. Which of the following is closest to your expected 1-year profit per ounce of gold produced
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