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A future contract is written on 100 shares of certain non-dividend-paying stock priced at $50. The contract expires in 3 months. The continuously compounded risk free interest rate is 6%. The initial margin is 10% of the notational value and the maintenance margin is 80% of the initial margin. The margin account earns a continuously compounded interest rate of 4%. The stock price becomes $53 on the first day after the contract was written and the $51 on the second day. What is the margin account balance of both parties of the future contract after marking-to-market?

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Financial Management, Finance

Category:- Financial Management
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