Derivatives.HW1.2019.pdf - ht Pr ot ec te d Johns Hopkins...

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Copyright Protected Johns Hopkins Carey Business School BU.232.710 Derivatives, 2019 Assignment 1 Due time: 8 am on Feb 18, 2019. One point will be deducted for every minute past due. The team leader is responsible for submitting your team’s writeup on Blackboard. In you submission, write the names of all your team members on the front page. Instructor: Wei Li February 9, 2019 1. Suppose one-year futures price of Gold is $1000/oz and the spot price of Gold is $990/oz. The size of the Gold futures is 10 oz/contract. The initial margin requirement is $500/contract and the maintenance margin requirement is $400/contract. (1.1) (1 points) To open a short position of 5 contracts of one-year Gold futures. How much balance do you need in the margin account? (1.2) (1 points) To avoid getting a margin call, what is the minimum margin balance you need? (1.3) (1 points) What is the notional value of your position? (1.4) (2 points) Suppose you open the position with just enough margin. What is your leverage right after opening the position? (1.5) (3 points) The Gold futures price goes up to $1020/oz. What is your profits due to this price change? What is your leverage ratio now? Will you get a margin call? (1.6) (1 points) How much additional margin do you need to post to keep the position? (1.7) (2 points) Suppose that instead of going up to $1,020, the Gold futures price actually dropped to $990 from $1,000. What is your leverage ratio now? How much money can you withdraw from your margin? (1.8) (2 points) Suppose that you actually borrowed $500 from your grandma in order to open the short position of 10 contracts initially. Your grandma kindly agrees to charge no interest. What is the leverage ratio of your own capital? 2. Check for the specification of frozen concentrated orange juice futures contract (OJ). Round to the fourth digit after the decimal point. (2.1) (1 points) What is the contract size? (2.2) (1 points) What are the possible delivery months in 2019? 1
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Copyright Protected BU.232.710 Assignment 1 (2.3) (1 points) Suppose the initial margin is $1,960 and the maintenance Margin is $1,400 for the March con- tract. A trader Julie Hopkins wants to open a short position of two March contracts. What’s the minimum margin account balance she needs? (2.4) (2 points) The latest futures price is $121.950 per 100 pounds. 1 What’s the notional value of her position? (2.5) (2 points) Julie opens the position with just enough balance in the margin account. What is her leverage right after she opens the position? (2.6) (2 points) Suppose the futures price decreases to 120.90 per 100 pounds at the end of the day. Does her leverage increase? What is her leverage now? (2.7) (2 points) Suppose Julie holds on to her position without posting additional margin. At what futures price would she receive a margin call? (2.8) (2 points) Suppose Julie holds on to her position without posting additional margin. What is her maximum possible leverage without trigger a margin call?
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