A company enters into a short position in futures contract to sell 5,000 bushels of wheat for $3.50 per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. The company will be allowed to withdraw any balance in the margin account in excess of the initial margin and the company will get a margin call if the balance is going below the maintenance margin. a. What will be the price that will trigger a margin call of $1,000? (sample answer:$4.50) b. What will be the price that will allow you to withdraw just $1,500 from the margin account?(sample answer:$4.50)
A company enters into a short position in futures contract to sell 5,000 bushels of wheat for $3.50 per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. The company will be allowed to withdraw any balance in the margin account in excess of the initial margin and the company will get a margin call if the balance is going below the maintenance margin. a. What will be the price that will trigger a margin call of $1,000? (sample answer:$4.50) b. What will be the price that will allow you to withdraw just $1,500 from the margin account?(sample answer:$4.50)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A company enters into a short
position in futures contract to sell
5,000 bushels of wheat for $3.50
per bushel. The initial margin is
$3,000 and the maintenance
margin is $2,000. The company
will be allowed to withdraw any
balance in the margin account in
excess of the initial margin and
the company will get a margin call
if the balance is going below the
maintenance margin.
a. What will be the price that will
trigger a margin call of $1,000?
(sample answer:$4.50)
b. What will be the price that will
allow you to withdraw just $1,500
from the margin account?(sample
answer: $4.50)
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