price at the end of this day is $50,200. How much does the member have to add to its margin account with the exchange clearinghouse? The clearinghouse member is required to provide 20 × $2, 000 = $40, 000 as initial margin for the new contracts. There is a gain of (50,200 − 50,000) × 100 = $20,000 on the existing contracts. There is also a loss of (51, 000 − 50, 200) × 20 = $16, 000 on the new contracts. The member must therefore add 40, 000 − 20, 000 + 16, 000 = $36, 000 to the margin account. Problem
avoid inflation through buying stocks. Investing call options: First, to achieve the benefits from differences in price. If the future price increases, the investor can sell it at a higher price to get benefit. Second, investing call options can reduce transaction exposure. Third, the investor can achieve leverage effect and take advantage of the leverage effect to do the transaction. Investing put options: First, to achieve the benefits from differences in price as well. Second, the investor can
8.You purchased 100 shares of ABC common stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. A) $21 B) $50 C) $49 D) $80 E) none of the above 9.You purchased 300 shares of common stock on margin for $60 per share. The initial margin is 60% and the stock pays no dividend. What would your rate of return
equivalent futures contract . Fungibility is assured by the clearinghouse that inserts itself in the middle of each contract and, therefore, becomes the counterparty to each party. -margin: long or short position in a futures, deposit sufficient funds in a margin account. -In the stock market, "margin" means that a loan is made. The loan enables the investor to reduce the amount of his own money required to purchase the securities, thereby generating leverage or gearing.
Tutorial 1 Solutions Your tutor will go through as many questions as possible with you in the tutorial. You should come to class with answers to these questions prepared. Solutions will be posted after the end of the week of the tutorial. Fundamental Concept Questions Question One “Options and futures are zero-sum games.” What do you think is meant by this statement? The statement means that the gain (loss) to the party with the short position is equal to the loss (gain) to the party
The day that will forever be known as “Black Thursday”, stock prices plummeted. Tons of people were selling their stocks. Margin calls were sent out. On "Black Thursday," 12.9 million shares were traded; holding a new record, double the previous. Four days later, the stock market fell again. The stock market crash affected the economy here and overseas. In total, $25 billion ($319 billion in today's dollars) was lost in the 1929 crash. Other unforgettable dates in that October are “Black Thursday”
market from a long position in contrast to my short position in the cash market. I took out one contract with a size of 5000 bushels of corn. I tracked this market since January 16th and collected futures and cash market prices throughout that whole period. In addition, I also analyzed hedging with futures and hedging futures with options dating back to February 21st. This report shall cover all aspects of this analysis including a compare and contrast section on each of the net prices from each hedging
shareholders, its clients and its employees. In the instance of Margin Call by J.C Chandor, a wide range of justifications revealed by the upper management level of an investment firm evinces the core values of the firm. Once it is revealed that there is a high probability of the firm being the devalued beyond market capitalization, the firm and its division heads attempt to find a solution to the imminent crisis. Although there is some dissent from Sam Rogers, Head of Sales and Trading, CEO Tuld promptly
Chapter 4 15. The Closed Fund is a closed-end investment company with a portfolio currently worth $200 million. It has liabilities of $3 million and 5 million shares outstanding. (LO 4-3) a. What is the NAV of the fund? b. If the fund sells for $36 per share, what is its premium or discount as a percent of NAV? a. NAV = = = $39.40 b. Premium (or discount) = = = –0.0863 = –8.63% The fund sells at an 8.63% discount from NAV. 18.
financial stability could sometimes be self-destructive, as one turns his greed into a bottomless pit that exhausts him and eventually isolates him from the rest of the world. Two movies, Margin Call and The Social Network, demonstrate the complex dynamic between commerce and individuals who struggle to find a balance between morality and money. Margin Call depicts the internal conflicts investment bank employees have between morality and greed when facing a financial meltdown while The Social Network