Chapter 2

# Options, Futures, and Other Derivatives with Derivagem CD (7th Edition)

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Chapter 2 Homework Solution 3. There will be a margin call when \$1000 has been lost from the margin account. This will occur when the price of the silver futures contract increases by 1000/5000 \$0.20. The price of the silver futures contract must therefore rise to \$10.40 per ounce for there to be as margin call. If the margin call is not met, your broker will close out your position. 4. Total profit = (70.50 - 68.30) \$/bbl * 1000 bbl/ctt * 1 ctt = \$2200 2009 profit = (69.10 - 68.30) \$/bbl * 1000 bbl/ctt * 1 ctt = \$800 The \$800 is realized on a day-to-day basis from September to December, 2009, while the remaining \$1400 is realized on a day-to-day basis from January to March 2010. The hedger would be taxed on the full \$2200 in 2010, while the speculator would be taxed on the \$800 in 2009 and the \$1400 in 2010. 11. There will be a margin call when \$1500 has been lost from the margin account. This will occur when the price of the orange juice futures contract decreases by 1500/15000 = \$0.10 to 150 cents. \$2000 can be withdrawn from the account when the
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Unformatted text preview: price of the orange juice futures contract increases by 1000/15000 = \$0.0667to 166.67 cents. 16. If F 1 and F 2 are the forward rates on 7/109 and 9/1/09, respectively and S is the spot rate on 1/10/10, then the profit on the first forward is \$1,000,000(S-F 1 ) and that on the second is \$1,000,000(F 2-S). The total payoff is then \$1,000,000(F 2-F 1 ). (All exchange rates are in ¥/\$.) 23. Total profit = (0.9120 – 0.8830) \$/lb * 40000 lb/ctt * 1 ctt = \$1160 2009 profit = (0.9120 – 0.8880) \$/lb * 40000 lb/ctt * 1 ctt = \$960 The hedger would be taxed on the full \$1160 in 2010, while the speculator would be taxed on the \$960 in 2009 and the \$200 in 2010. 26. There will be a margin call when \$1000 has been lost from the margin account. This will occur when the price of the wheat futures contract increases by 1000/5000 = \$0.20 to 470 cents. \$1500 can be withdrawn from the account when the price of the wheat futures contract decreases by 1500/5000 = \$0.30 to 420 cents....
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