Let's assume that you are a U.S. investor who wants to invest $10,000 in gold. The current price of gold is $400, and you expect it to go up by 10% in the very short-term. You consider buying shares of gold mines; you are debating whether to invest in Bel Or or Schoen Gold. Your broker gives you the following information:
$$\begin{array} { l c c }
& \text { Bel Or } & \text { Echaen Gald } \
\hline \text { Praductian Cast per Ounce } & \$ 147 & \$ 340 \
\text { Gald beta } ( \beta ) & 1.6 & 0
\end{array}$$ The gold $\beta$ is obtained by running a regression of the percentage price movements in the gold mine stock on the percentage price movements in gold bullion. It indicates the stock market price sensitivity to gold.
a. Explain why a gold mine with a high production cost should have a value that is more sensitive to gold price movements than a gold mine with low production costs.
b. Which mine would you buy and why?
c. What is your expected return, given this scenario?

Question

Let's assume that you are a U.S. investor who wants to invest $10,000 in gold. The current price of gold is $400, and you expect it to go up by 10% in the very short-term. You consider buying shares of gold mines; you are debating whether to invest in Bel Or or Schoen Gold. Your broker gives you the following information:
 $$\begin{array} { l c c } 
& \text { Bel Or } & \text { Echaen Gald } \
\hline \text { Praductian Cast per Ounce } & \$ 147 & \$ 340 \
\text { Gald beta } ( \beta ) & 1.6 & 0
\end{array}$$ The gold $\beta$ is obtained by running a regression of the percentage price movements in the gold mine stock on the percentage price movements in gold bullion. It indicates the stock market price sensitivity to gold.
a. Explain why a gold mine with a high production cost should have a value that is more sensitive to gold price movements than a gold mine with low production costs.
b. Which mine would you buy and why?
c. What is your expected return, given this scenario?

Quizplus · Accepted Answer

The Answer of Let's assume that you are a U.S. investor who wants to invest $10,000 in gold. The current price of gold is $400, and you expect it to go up by 10% in the very short-term. You consider buying shares of gold mines; you are debating whether to invest in Bel Or or Schoen Gold. Your broker gives you the following information:
 $$\begin{array} { l c c } 
& \text { Bel Or } & \text { Echaen Gald } \
\hline \text { Praductian Cast per Ounce } & \$ 147 & \$ 340 \
\text { Gald beta } ( \beta ) & 1.6 & 0
\end{array}$$ The gold $\beta$ is obtained by running a regression of the percentage price movements in the gold mine stock on the percentage price movements in gold bullion. It indicates the stock market price sensitivity to gold.
a. Explain why a gold mine with a high production cost should have a value that is more sensitive to gold price movements than a gold mine with low production costs.
b. Which mine would you buy and why?
c. What is your expected return, given this scenario?

Let's Assume That You Are a U The Gold β\betaβ Is Obtained by Running a Regression of the Percentage Price

Let's Assume That You Are a U The Gold $\beta$ Is Obtained by Running a Regression of the Percentage Price