The current price of silver is $32.00 per ounce.The effective lease rate and risk free rate are 3.0% and 4.0%,respectively.If the cost to mine one ounce of silver is a constant $25.00,what is the trigger price per ounce at which the silver will be mined?
A) $33.17
B) $35.17
C) $37.17
D) $39.17

Question

Quizplus · Accepted Answer

The trigger price for mining silver can be calculated considering the cost to mine, the current price, and the rates mentioned. The effective lease rate (3.0%) and the risk-free rate (4.0%) suggest a convenience yield of 1.0% (4.0% - 3.0%). The trigger price is when the cost to mine ($25.00) adjusted for the convenience yield equals the current price, leading to a calculation that results in $33.17 as the trigger price.

The Current Price of Silver Is $32