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BU423_Test_Bank - Copy (2)

# BU423_Test_Bank - Copy (2) - BU423 Test Bank Dr J A...

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BU423 Test Bank Dr. J. A. Schnabel Page 2 of 35 A.) What is the breakeven stock price, above which the trader makes a profit? B.) What is the breakeven stock price below which the trader makes a profit? A.) \$35 since 2=10/x’ where x’ is the amount by which the breakeven price exceeds \$30, the strike price. Note that x = 30 + x’. B.) \$20 since 1=10/y’ where y’ is the amount by which the breakeven price falls short of \$30, the strike price. Note that y = 30 – y’. y x \$30 Chapter 2: Mechanics of Futures Markets 2.1. A company enters into a short futures contract that involves 50,000 pounds of cotton for 70 cents per pound. The initial margin is \$4,000 and the maintenance margin is \$3,000. What is the futures price above which there will be a margin call?
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