Fundamentals Of Corporate Finance, 9th Edition
9th Edition
ISBN: 9781260052220
Author: Richard Brealey; Stewart Myers; Alan Marcus
Publisher: McGraw-Hill Education
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Chapter 24, Problem 15QP
Summary Introduction
To discuss: Whether person X will ask for the money to person Y or offer to pay.
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Students have asked these similar questions
You bought a futures contract for $2.60 per bushel and the contract ended at $2.70 after several days of trading with the following close prices each day: $2.52, $2.57, $2.62, $2.68, and $2.70. What would the mark to market sequence be?
A.
-.08, .05, .05, .06, .02
B.
.08, -.05, -.05, -.06, -.02
C.
.08, .03, -.02, -.06, -.10
D.
-.08, -.03, .02, .06, .10
E.
.10, .06, .02, -.03, -.08
(a) The transferring of risk onto the clearing house is not something unique to futures trading. In fact, most of financial intermediaries such as insurance companies, finance companies and bank take on risk transferred to them and manage these risks.
Based on the above statement, discuss the TWO (2) types of margins in derivatives markets.
(b) You as a farmer have gone short 15 March Cocoa futures contracts. The 5-day period using hypothetical futures settlement prices. On the day 0 which both parties enter the contract. Given the following information, determine the daily marking-to-market adjustment to both you and the counterparty account. (Assuming same total value)
Contract size = 10 tons per contract
Initial margin = 10 percent of total value
Maintenance margin = 70 percent of initial margin
You have taken a short position in a futures contract on corn at $2.60 per bushel. Over the next 5 days the contract settled at 2.52, 2.57, 2.62, 2.68, and 2.70. You then decide to reverse your position in the futures market on the fifth day at close. What is the net amount you receive at the end of 5 days?
A.
$0.00
B.
$2.60
C.
$2.70
D.
$2.80
E.
Must know the number of contracts
Chapter 24 Solutions
Fundamentals Of Corporate Finance, 9th Edition
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- This morning (Day 0) you take a short position in a pound futures contract that matures in 3 days (Day 3). The future price is $1.9750 today. The contract size is £62,500 and its initial performance bond and maintenance bond are $2,430 and $1,830, respectively. a. (b) Assuming that the daily settlement prices are indicated below, how would the daily change in settlement future prices affect your account? Show the daily gain/loss and account balance. Day 0 1 2 3 Settlement 1.9750 1.9700 1.9815 1.9907 Total Gain/Loss Account Balance b. During this period, did you receive a margin call? If you did, on what day? c. At the end of Day 3, how much in total did you make/lose on this futures contract?arrow_forwardYou work in a derivatives section in an investment bank. In August, a customer who holds Texa stock priced at $150 is worried that the stock will fall in price by the end of the year. Assuming the stock does not pay a dividend, can you sell the customer an option that insures that if the stock price falls below $145, their stock plus option payoff will never fall below $145? Explain.arrow_forwardAssume that you entered into a futures contract to buy C82,500 at $1.20 per C. Suppose the futures price closes today at $1.25. How much have you made/lost? tof Select one: O a You have made $2.500.00. O b. You have made $4125.00. O G. You have lost $2,500.00. Od You have lost $4,125.00.arrow_forward
- Is there an exchange that widely shares historical settlement prices on Futures contracts? I looked at the Chicago Mercantile Exchange and it would only show me the settlement prices for the past week and I need more historical data.arrow_forwardYou have a long position in one soybean futures contract. The initial margin was $3,250 and the maintenance margin is $1,750. At the close of trading yesterday, the futures price was $8.03 per bushel and the balance in your margin account was $4,500. Today, the settlement price for soybean futures is $7.33. Will you receive a margin call and what deposit will you be required to make? $1,750 O no margin call; $0. O $2,250 $2,750arrow_forwardOn Tuesday morning, an investor takes a long position in GBP futures contract with a size of GBP 70,500 that matures on Thursday afternoon. Using the below table, what will be the investor's net profit (loss)? Time Close Price Tuesday 1 GBP = USD1.75 Morning (T) Tuesday Close1 GBP = USD1.76 (T) Wednesday 1 GBP = USD1.80 Close (T+1) Thursday 1 GBP = USD1.78 Close (T+2) O a. USD 2,820 O b. USD 705 OC USD 2,115 O d.- USD 1,410arrow_forward
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- 1)Demonstrate how a Margin Account operates for both the Long and the Short futures position using the following information (you do not need to adjust the values given for contract size or number of contracts): The initial margin is R30. The initial Futures price is R100. On Day 1 the price drops to R90. On Day 2 the price rises to R95. Fill in the correct monetary values for the margin account values (a) through to (f) in your answer booklet. Take care to show the signs (negative and positive) of your cash flows. LONG SHORT DAY 0 (a) (b) DAY 1 (c) (d) DAY 2 (e) (f)arrow_forwardAs a financial analyst at Deutsche Bank, NY, you are helping your client with futures hedging. Your client enters into a long position in futures contract to buy 5,000 bushels of wheat for $6.50 per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. Your client will be allowed to withdraw any balance in the margin account in excess of the initial margin and the company will get a margin call if the balance is going below the maintenance margin. a. Will the trader get a margin call if the futures price goes to $6.14? (sample answer: Yes or No) b. What will be the price that will trigger a margin call of $2,500? C. What will be the price that will allow you to withdraw just $2,500 from the margin account? (sample answer $4.50) (sample answer:$4.50)arrow_forwardA trader takes a view that March KLSE CI futures which are currently trading at 1188.60 are about to enter a downtrend. Should the trader go long or short futures. Assuming the trader maintains their original position until expiry and the cash settlement price is 1185.40, what will be the profit or loss? The contract size is RM50 per contract.arrow_forward
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