Please show work 1. The futures price of a commodity such as corn is $1.00. The
ID: 2612757 • Letter: P
Question
Please show work
1. The futures price of a commodity such as corn is $1.00. The contracts are for 10,000 bushels, so a contract is worth $10,000. The margin requirement is $1,000 a contract, and the maintenance margin requirement is $600. You expect the price to fall and enter into contract to sell.
a. How much must you initially remit?
b. If the futures price falls to $0.94, what is the value of the contract?
c. If the futures price rises to $1.04, what is the value of the contract?
d. If the futures price continues to rise to $1.09, what will you have to do?
2. The futures price of gold is $1,200. Futures contracts are for 100 ounces of gold, and the margin requirement is $10,000 a contract. The maintenance margin requirement is $4,000. You expect the price of gold to rise and enter into a contract to buy gold.
a How much must you initially remit?
b. If the futures price of gold rises 1 percent to $1,212, what is the profit and percentage return on your position?
c. If the futures price of gold declines 1 percent to $1,188, what is the loss and percentage return on the position?
d. If the futures price falls to $1,175, what must you do?
e. If the futures price continues to decline to $1,134, how much do you have in your account?
f. How do you close your position?
Explanation / Answer
1. The futures price of a commodity such as corn is $1.00. The contracts are for 10,000 bushels, so a contract is worth $10,000. The margin requirement is $1,000 a contract, and the maintenance margin requirement is $600. You expect the price to fall and enter into contract to sell.
a. How much must you initially remit?
Initially remit = $ 1000
b. If the futures price falls to $0.94, what is the value of the contract?
value of the contract = 0.94*10000 = $ 9400
c. If the futures price rises to $1.04, what is the value of the contract?
value of the contract = 1.04*10000 = $ 10400
d. If the futures price continues to rise to $1.09, what will you have to do?
If the futures price continues to rise to $1.09
Margin money would be = 1000 - (1.09-1)*10000
Margin money would be = $ 100
You will have to deposit maintenance margin = maintenance margin requirement - Balance in Margin money
You will have to deposit maintenance margin = 600-100
You will have to deposit maintenance margin = $ 500