Goldminers Inc. mines and refines ore and sells pure gold in the global market. To...
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Goldminers Inc. mines and refines ore and sells pure gold in the global market. To raise funds, it sells a derivative security whose payoff is as follows: - Part of the security is a zero-coupon bond (which is sold at a discount and makes no interest payments) that pays a principal of $1,000 at maturity T. - Goldminers also pays an additional amount that is indexed to gold's price (per ounce) at maturity S(T):
0 if S(T) <= $1,350
$30 [S(T) - 1,350] if $1,350 < S(T) <= $1,400
$1,500 if $1,400 < S(T)
Analyze this derivative as a combination of bond and put options.
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