The margin requirement on the S&P 500 futures contract is 8%, and the stock inde

Question

The margin requirement on the S&P 500 futures contract is 8%, and the stock index is currently 1,400. Each contract has a multiplier of $250.

a. How much margin must be put up for each contract sold? Margin $

b. If the futures price falls by 1% to 1,386, what will happen to the margin account of an investor who holds one contract? (Input the amount as a positive value.) Margin account by $ .

c-1. What will be the investor's percentage return based on the amount put up as margin? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Percentage return %

c-2. What would be the current cash balance in the margin account? Cash balance $

Explanation / Answer

a. One contract will have a mutiliper of 250 The value of 1 contract will be 1400*250 =350,000. Hence the margin on each contract sold is 350,000*0.08 = 28,000

b. When the Price falls to 1386, the total value will be 1386 * 250 = 346,500 and the margin amount will be reduced to 27,720. Hence margin account reduced by 28,000 -27,720 = 280

c-1 The % return on the amount put as margin will be -280/28000 = -1%

C-2 balance in the margin account is $27,720

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