CORPORATE FINANCE>CUSTOM<
11th Edition
ISBN: 9781308755465
Author: Ross
Publisher: MCG/CREATE
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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.
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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…
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?
Gold 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) $2,120
Chapter 25 Solutions
CORPORATE FINANCE>CUSTOM<
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...
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