The following trade quotes are for futures contracts on U.S. Treasury bonds. Ope

Question

The following trade quotes are for futures contracts on U.S. Treasury bonds.

Open

High

Low

Settle

Sep

98-15

99-01

98-07

98-22

Dec

98-10

98-31

98-07

98-20

Mar

98-29

98-29

98-08

98-19

Suppose the initial margin on the T-bond futures is $2,500, while the maintenance margin is $2,000. You BOUGHT the December contract at the LOW. What would be the futures price at which a margin call would be initiated?

Open

High

Low

Settle

Sep

98-15

99-01

98-07

98-22

Dec

98-10

98-31

98-07

98-20

Mar

98-29

98-29

98-08

98-19

Explanation / Answer

For the margin call to be initiated the value should fall from 2500 to 2000The % fall is 500/2500 = 20%

So the orginal price of seprember low is 98-07 meaning [( 98 + 7/32) * 1000] =98,218.75

Hence the price should fall by 20% So the new price should be 98218*(1-0.2) = 78, 575 = 78-18

So the priceshould fall to 78-18 for the margin call to be triggered

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