1. A week ago a trader bought one December gold futures contract (size = 100 oun
ID: 2808100 • Letter: 1
Question
1. A week ago a trader bought one December gold futures contract (size = 100 ounces) at $1,200/oz. The gold futures contracts are traded on the New York Mercantile Exchange. The initial margin requirement is $8,000. Ignore margin calls or maintenance margin in the following calculations.
(1) Suppose that today the trader closed out the position at $1,240/oz. How much is the amount of profit/loss, and how much is the rate of return on the investment?
(2) Suppose that today the trader closed out the position at $1,150/oz. How much is the amount of profit/loss, and how much is the rate of return on the investment?
2. A trader enters into one December crude oil futures contract to sell 1,000 barrels at $70/barrel. The initial margin requirement is $10,000 and the maintenance margin is $5,000. What price change will lead to a margin call? Please explain.
Explanation / Answer
(1)
Initial Equity=8000
Broker loan=1200*100-8000=112000
Profit=1240*100-112000-8000=4000
Rate of return=4000/8000=50%
(2) Suppose that today the trader closed out the position at $1,150/oz. How much is the amount of profit/loss, and how much is the rate of return on the investment?
Initial Equity=8000
Broker loan=1200*100-8000=112000
Profit=1150*100-112000-8000=-5000
Rate of return=-5000/8000=-62.5%
2. A trader enters into one December crude oil futures contract to sell 1,000 barrels at $70/barrel. The initial margin requirement is $10,000 and the maintenance margin is $5,000. What price change will lead to a margin call? Please explain.
Let Price be P
10000-1000*(P-70)<=5000
=>P>=75
If price rises more than $5, margin call will be made
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.