UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
expand_more
expand_more
format_list_bulleted
Question
Chapter 25, Problem 4QP
Summary Introduction
To calculate: Cash flow and profit or loss at the end of trading day.
Future Contracts:
In future contracts, an agreement has been signed by two parties for the purpose of buying and selling of particular underlying assets at the decided date with specified period of time. Buying an underlying asset is called the long position, while selling is called the short position.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose that you bought two one-year gold futures contracts when the one-year futures price of gold was US$1,340.30 per troy ounce. You then closed the position at the end of the sixth trading day. The initial margin requirement is US$5,940 per contract, and the maintenance margin requirement is US$5,400 per contract. One contract is for 100 troy ounces of gold. The daily prices on the intervening trading days are shown in the following table.
Day
Settlement Price
0
1340.30
1
1345.50
2
1339.20
3
1330.60
4
1327.70
5
1337.70
6
1340.60
Assume that you deposit the initial margin and do not withdraw the excess on any given day. Whenever a margin call occurs on Day t, you would make a deposit to bring the balance up to meet the initial margin requirement at the start of trading on Day t+1, i.e., the next day.
a. What are the initial margin and maintenance margin on your margin account?
Suppose that you bought two one-year gold futures contracts when the one-year futures price of gold was US$1,340.30 per troy ounce. You then closed the position at the end of the sixth trading day. The initial margin requirement is US$5,940 per contract, and the maintenance margin requirement is US$5,400 per contract. One contract is for 100 troy ounces of gold. The daily prices on the intervening trading days are shown in the following table.
Day
Settlement Price
0
1340.30
1
1345.50
2
1339.20
3
1330.60
4
1327.70
5
1337.70
6
1340.60
Assume that you deposit the initial margin and do not withdraw the excess on any given day. Whenever a margin call occurs on Day t, you would make a deposit to bring the balance up to meet the initial margin requirement at the start of trading on Day t+1, i.e., the next day.
c. What is your total profit after you closed out your position?
Suppose that you bought two one-year gold futures contracts when the one-year futures price of gold was US$1,340.30 per troy ounce. You then closed the position at the end of the sixth trading day. The initial margin requirement is US$5,940 per contract, and the maintenance margin requirement is US$5,400 per contract. One contract is for 100 troy ounces of gold. The daily prices on the intervening trading days are shown in the following table.
Day
Settlement Price
0
1340.30
1
1345.50
2
1339.20
3
1330.60
4
1327.70
5
1337.70
6
1340.60
Assume that you deposit the initial margin and do not withdraw the excess on any given day. Whenever a margin call occurs on Day t, you would make a deposit to bring the balance up to meet the initial margin requirement at the start of trading on Day t+1, i.e., the next day.
b. Fill the appropriate numbers in the blank cells in the following table. (Hint: See solution to Q19 in Lesson 2 Learning…
Chapter 25 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
Ch. 25 - Prob. 1CQCh. 25 - Prob. 2CQCh. 25 - Prob. 3CQCh. 25 - Prob. 4CQCh. 25 - Prob. 5CQCh. 25 - Prob. 6CQCh. 25 - Option Explain why a put option on a bond is...Ch. 25 - Hedging Interest Rates A company has a large bond...Ch. 25 - Prob. 9CQCh. 25 - Prob. 10CQ
Ch. 25 - Prob. 11CQCh. 25 - Prob. 12CQCh. 25 - Prob. 13CQCh. 25 - Prob. 14CQCh. 25 - Hedging Strategies William Santiago is interested...Ch. 25 - Prob. 16CQCh. 25 - Prob. 1QPCh. 25 - Prob. 2QPCh. 25 - Prob. 3QPCh. 25 - Prob. 4QPCh. 25 - Prob. 5QPCh. 25 - Duration What is the duration of a bond with three...Ch. 25 - Duration What is the duration of a bond with four...Ch. 25 - Duration Blue Stool Community Bank has the...Ch. 25 - Prob. 9QPCh. 25 - Prob. 10QPCh. 25 - Prob. 11QPCh. 25 - Prob. 12QPCh. 25 - Prob. 13QPCh. 25 - Forward Pricing You enter into a forward contract...Ch. 25 - Forward Pricing This morning you agreed to buy a...Ch. 25 - Prob. 16QPCh. 25 - What is the monthly mortgage payment on Jerrys...Ch. 25 - Prob. 2MCCh. 25 - Prob. 3MCCh. 25 - Prob. 4MCCh. 25 - Suppose that in the next three months the market...Ch. 25 - Are there any possible risks Jennifer faces in...
Knowledge Booster
Similar questions
- Last week, you sold a futures contract on 5,000 troy ounces of silver at a settle price of S 23.10. Today, you made delivery and the daily settle price was $23.15. What amount will you receive at the time of delivery? Assume yesterday's settle price was $23.19.arrow_forwardSuppose an investor takes a long position in 1 Gold futures contract, and the following information is given: Contract size = 100 ounces. Futures price = $500 Initial margin = $3,000 per contract. Maintenance margin = $2,000 per contract Date Jan. 1 Jan. 2 Jan. 3 Jan. 4 Jan. 5 Jan. 6 Jan. 7 Jan. 8 Future prices 494 495 488 490 491 474 475 474 i) In which days will there be a margin call? How much will be the variation margin in all cases? ii) In which days do the balances in the margin account exceed the initial margin? B) Party A agrees to pay Party B a fixed rate of 4%. Party B agrees to pay Party A a floating rate based on the return of the S&P 500 Index. The payments will be made annually and will be based on a notional principal of $1,000,000. i) Suppose at the end of the first year, the S&P 500 appreciated by 4.5%. How much will Party B will pay Party A II) What will happen in the second year, if the S&P 500 depreciated…arrow_forwardGold is trading at a one-year futures price of $2,005 per troy ounce. A futures contract comprises 100 troy ounces. The initial margin is $50,125 and the maintenance margin is $32,080. You are short one futures contract. There is a margin call when the price per troy ounce of gold changes to: Group of answer choices A) $1,967 B) $2,207 C) $1,858 D) $2,120arrow_forward
- An investor takes a long position in two gold futures contracts. Each gold futures contract is for delivery of 100 ounces of gold. The initial futures price is $1,250 per ounce. The initial margin is $6,000 per contract. The investor closes the contracts when the gold futures price is $1,226.90. If there was one margin call for $4,020, what is the balance in the margin account at the time of closing the futures contracts? a. $11,400 b. $11,800 c. $12,200 d. $12,600 e. $13,000arrow_forwardOn Monday morning you sell one June T-bond futures contract at $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to calculate your cumulative rate of return on your investment at the close of day on Tuesday. Day Settle Monday $ 97,406.25 Tuesday $ 98,000.00 Wednesday $ 100,000.00 16.2% −5.8% −0.16% −2.2% 10%arrow_forwardAn investor enters a long position in a Bitcoin April 2023 futures contract at $23,450. Each contract controls 5 bitcoins. The initial margin for each contract is $30,800, the maintenance margin is $28,000. The futures price changes to $23,020 at the end of the first day and $22,752 on the end of the second day. Compute the amount in the margin account at the end of each day for the long position and any variation margin needed. (Please provide a step-by-step solution on how to solve this problem with a calculator, thank you!)arrow_forward
- You enter into a futures arrangement to purchase 40 Alpacas. The futures price is $8400/Alpaca. You must deposit 60% of the purchase price into a margin account. The account pays 6% interest, compounded continuously. Over the next two days, the futures price of Alpacas fluctuates. After the first day, the price is $8430/Alpaca. After the second day, the price is $8420/Alpaca. You exit the arrangement after the second day. What is your profit if the risk-free interest rate is 9%, compounded continuously? Upload Choose a Filearrow_forwardAssume a futures price of Php5000 at the start of the transaction, with Php250 initial margin requirement and a Ph150 maintenance margin requirement. The trader takes in a short position of 10 contracts. Marking-to-market process occurs over the period of seven trading days. A. Complete the table above for the holder of the long position. B. When could there be a margin call? C. How much are the total gains or losses by the end of day 7?arrow_forward1. Assume a futures price of Php5000 at the start of the transaction, with Php250 initial margin requirement and a Ph150 maintenance margin requirement. The trader takes in a long position of 10 contracts. Marking-to-market process occurs over the period of seven trading days. A. Complete the table above for the holder of the long position. B. When could there be a margin call? C. How much are the total gains or losses by the end of day 7? Futures Beginning Balance Ending Balance Funds Settlement Day Price Gain/Loss Deposited Price Change 5000 4960 2 4800 5050 4 5175 5200 5250.50 5310.75 7 D. Complete the table above for the holder of the short position. Futures Beginning Balance Funds Day Settlement Price Ending Balance Price Gain/Loss Deposited Change 5000 1 4960 4800 5050 4 5175 5200 5250.50 7 5310.75 E. How much are the total gains or losses by the end of day 7?arrow_forward
- Sixty futures contracts are used to hedge an exposure to the price of silver. Each futurescontract is on 5,000 ounces of silver. At the time the hedge is closed out, the basis is $0.20per ounce. What is the effect of the basis on the hedger’s financial position if (a) the traderis hedging the purchase of silver and (b) the trader is hedging the sale of silver?arrow_forward1. Assume a futures price of Php5000 at the start of the transaction, with Php250 initial margin requirement and a Ph150 maintenance margin requirement. The trader takes in a long position of 10 contracts. Marking- to-market process occurs over the period of seven trading days. A. Complete the table above for the holder of the long position. B. When could there be a margin call? C. How much are the total gains or losses by the end of day 7? Futures Beginning Funds Settlement Ending Day Price Gain/Loss Balance Deposited Price Balance Change 5000 1 4960 2 4800 3 5050 4 5175 5 5200 6 5250.50 7 5310.75 D. Complete the table above for the holder of the short position. Futures Beginning Funds Settlement Ending Day Price Gain/Loss Balance Deposited Price Balance Change 5000 1 4960 2 4800 3 5050 4 5175 5 5200 6 5250.50 7 5310.75 Е. How much are the total gains or losses by the end of day 7?arrow_forwardConsider the following prices, volume and open interest for gold futures contracts. Contract size: 100 oz Price units: $/oz (a) Which contract reached the highest price on this trading day? What was its contract value at that price? (b) Why is the high price equal to the low price for the contract expiring in October 2022?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education