# You purchase five futures contracts at a price of 432

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Chapter 23 / Exercise E 23-1A
College Accounting, Chapters 1-27
Heintz/Parry
Expert Verified
103. You purchase five futures contracts at a price of \$4.32 on 15,000 bushels and an initial margin of \$4,500. If the maintenance margin is \$3,800, at what price change will you receive a margin call? A. A price decrease of \$0.047. B. A price increase of \$0.038. C. A price increase of \$0.051. D. A price increase of \$0.047. E. A price decrease of \$0.038. Buyers suffer if spot price drops below futures price. (\$4,500 - \$3,800)/15,000 = \$0.04666 Jordan - Chapter 16 #103 Level: Medium Section: 16.3-Futures Trading Accounts Topic: Margin Calls 104. You purchase eight contracts on 150 troy ounces at price of \$412 per ounce. The initial margin is \$1,500 per contract, and the maintenance margin is \$1,200 per contract. The closing price the next day is \$417 per ounce. What is your new margin balance? A. \$12,000 B. \$12,400 C. \$18,000 D. \$21,000 E. \$14,000 [\$1,500 + (\$417 - \$412)(150)] × 8 = \$18,000 Jordan - Chapter 16 #104 Level: Medium Section: 16.3-Futures Trading Accounts Topic: Margin Balance 105. You purchase four futures contract on 10,000 gallons at a price of \$18.75 per gallon. The initial margin is \$2,500 per contract, and the maintenance margin is \$1,800 per contract. If the contract closes at \$18.71 per gallon, what is your new margin balance? A. \$11,600 B. \$7,200 C. \$7,700 D. \$8,400 E. \$7,900 [\$2,500 + (\$18.71 - \$18.75)(10,000)] × 4 = \$8,400 Jordan - Chapter 16 #105 Level: Medium Section: 16.3-Futures Trading Accounts Topic: Margin Balance
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Chapter 23 / Exercise E 23-1A
College Accounting, Chapters 1-27
Heintz/Parry
Expert Verified
106. A client has asked you about hedging his production of soybean oil. He expects to sell 360,000 pounds of soybean oil in four months. Soybean oil contracts are available at 60,000 pounds per contract. How could he hedge his position? A. Buy 6 contracts. B. Sell 7 contracts. C. Buy 7 contracts. D. Sell 6 contracts. E. None of the above. Lock in the price by going short with 360,000/60,000 = 6 contracts Jordan - Chapter 16 #106 Level: Medium Section: 16.2-Why Futures? Topic: Commodity Hedging 107. Your company must purchase 1,134,000 gallons of heating oil in five months. Heating oil futures are available for 42,000 gallons. How can you hedge this position? A. Sell 27 contracts. B. Buy 24 contracts. C. Buy 27 contracts. D. Sell 24 contracts. E. Buy 26 contracts. Offset the short position in the spot market with a long position in futures. 1,134,000/420,000 = 27 contracts Jordan - Chapter 16 #107 Level: Medium Section: 16.2-Why Futures? Topic: Commodity Hedging 108. You want to hedge a \$500 million dollar bond portfolio with a duration of 12.5 years using 10-year Canada bond futures with a duration 8.5 years. The futures have a multiplier of \$100,000 and a price of 102.81. If the futures expire in 5 months, how many contracts do you need to hedge the portfolio? A. 6,817 B. 6,532 C. 6,906 D. 7,151 E. 7,032 D F = 8.5 + 5/12 = 8.9167 years. P F = \$100,000(1.0281) = \$102,810. Number of contracts = (12.5 × \$500,000,000)/(8.9167 × \$102,810) = 6,817.74 Jordan - Chapter 16 #108 Level: Hard Section: 16.5-Stock Index Futures Topic: Bond Hedging