Project #18911 - Finance

MGMT E-2000

Fall, 2013

 

Problem Set 8

(Due Tuesday, Dec. 10)

 

 

1.   (50 pts) 

 

a.   (10 pts)

 

Briefly describe what a futures contract is.

 

b.   (20 pts)

 

What is the difference between initial margin and maintenance margin on a futures contract?

 

c.   (20 pts)

 

One futures contract on orange juice is equal to 15,000 lbs. of juice.  Recently, the  contract was trading at around $ 1.50/lb.  If the initial margin for an orange juice contract is $1,890, approximately what is the leverage an investor enjoys by trading this commodity?

 

 

2.   (50 pts)

 

The “big” S&P stock index futures contract trades only “in the pit,” whereas the “E-mini” S&P contract trades only electronically.  The E-mini contract is worth 1/5 of the value of the “big” contract.

 

a.   (10 pts)

 

      Recently, the E-mini contract closed at 1196.50.   What was the total value represented by one E-mini S&P contract as of the day of that close?

 

b.   (5 pts)

 

      If you think the S&P index is likely to go down in the near future, would you buy or sell an E-mini futures contract? 

 

 

 

 

 

c.   (5 pts)

 

Based on the margin requirements given at:

 

http://www.eltee.de/en/usefulsmargins.php

 

      how much initial margin would you have to put up to buy or sell 1 contract?

 

d.   (15 pts)

 

      Assume that in two weeks, the contract closes at 1182.  What would be your profit or loss, given the action you answered for part b?

 

e.   (15 pts)

 

 

      Assume now that the trade went against you, i.e., the price of the contract goes up instead of down.  At what contract price would you have gotten a margin call?  How much additional margin will you need to deposit in your account?

Subject Mathematics
Due By (Pacific Time) 12/08/2013 12:00 am
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