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Suppose an investor has a $1 million long position in T-bond futures. The investor's broker requires a maintenance margin of 4%, which is the amount currently in the investor's account.

a) Suppose also that the value of the futures contract drops by $50,000 to $950,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor's account balance as a result of the price drop?

b) If the futures contract drops in value the next day by another $40,000, to $910,000, how much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor's account balance as a result of the price drop?

c) If, on day 3, the futures contract increases in value by $65,000, to $975,000, how much will the investor be able to withdraw from his account to maintain his margin? What will be the value of the investor's account balance as a result of the price drop?

d) Suppose, instead, an investor has a $1 million short position in T-bond futures and that the value of the futures contract increases by $50,000 to $1,050,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor's account balance as a result of the price drop?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92398247

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