2. Assume that XYZ mines gold, with fixed costs of $25/oz and variable cost of...
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2. Assume that XYZ mines gold, with fixed costs of $25/oz and variable cost of $15/ oz. The 1-year forward price of gold is $46/ oz. The 1-year continuously compounded interest rate is 2%. a. b. If XYZ does nothing to manage gold price risk, what is its profit 1 year from now, per oz of gold? If XYZ sells forward its expected gold production, what is its estimated profit 1 year from now? Construct graphs illustrating both unhedged and hedged profit. c. Note: assume the spot price of gold after one year can take the values: $25, $35, $40, $45, $55. 2. Assume that XYZ mines gold, with fixed costs of $25/oz and variable cost of $15/ oz. The 1-year forward price of gold is $46/ oz. The 1-year continuously compounded interest rate is 2%. a. b. If XYZ does nothing to manage gold price risk, what is its profit 1 year from now, per oz of gold? If XYZ sells forward its expected gold production, what is its estimated profit 1 year from now? Construct graphs illustrating both unhedged and hedged profit. c. Note: assume the spot price of gold after one year can take the values: $25, $35, $40, $45, $55
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