FIN 787Homework 5

# Enter into long position in 16 may 2012 contracts the

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Enter into long position in 16 May 2012 contracts. The initial margin requirement is: 64 x 600 = \$38,400 b. April 2012: close out 16 May 2012 contracts. There is a margin call when price drops by: (600-400)/5000 = \$0.04 / bushel In April 2012 the price drops more than 4 cents/ bushel, therefore margin calls happen for all the contracts. 16 May 2012 contracts loss: 16 x 5,000 x (5.12-4.58) = \$43,200 48 Dec 2012 contracts loss: 48 x 5,000 x (5.06-4.70) = \$86,400 Account balance: 38,400-43,200-86,400 = -91,200 c. In November 2012: close out 48 Dec 2012 contracts Enter into long position in 16 May 2013 contracts Enter into long position in 16 Dec 2013 contracts At the end of April 2012, the company was subject to margin calls, so it had to deposit more money to keep it position for 48 Dec 2012 contracts. The account balance at the end of April is: 48 x 600 = \$28,800 In November 2012, the company is subject to margin call because the price drops more than 4 cents/ bushels 48 Dec 2012 contracts loss: 48 x5000 x (4.70 – 3.90) = 192,000 Account balance: 28,800-192,000 = -163,200 d. In April 2013: close out 16 May 2013 contracts In this month, the company is not subject to any margin call Profit on 16 May 2013 contracts: 16 x 5000 x (4.98-3.82) = \$92,800 Profit on 16 December 2013 contracts: 16 x 5000 x (4.90-3.74) = \$92,800 At the end of November 2012, the company was subject to margin calls, so it had to deposit more money to keep it position for 48 Dec 2012 contracts to the initial margin. The account balance at the end of November 2012 is: 32 x 600 = 19,200 Account balance: 32x 600 +92,800+ 92,800 = \$204,800

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e. In Nov 2013: close out 16 December 2013 contracts In this month, the company is not subject to any margin call Profit on 16 Dec 2013 contracts: 16 x 5,000 x (6.30 – 3.74) = 204,800 Account balance: 16x 600 + 204,800 = 214,400 f.
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• Spring '12
• Scott
• #, \$0.04, \$28,800

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