Let the spot price of gold today be $1,500 per ounce.Jewelry maker Jewelrygold Inc.sets up a buying hedge by going long gold futures.The basis is -$50 today and -$5 on the day the company lifts the hedge by buying gold in the spot market and selling the futures.The company's effective buying price for gold is:

Question

Quizplus · Accepted Answer

The effective buying price for gold is calculated as Spot Price + Basis - Change in Basis.
Given, Spot price = $1,500/ounce, Basis (initial) = -$50 and Basis (final) = -$5.
Therefore, effective buying price = 1500 + (-50) - (-5) = $1,545/ounce. 
Thus, the correct option is B.

Let the Spot Price of Gold Today Be $1,500 Per