Suppose the initial margin on heating oil futures is $8,400, the maintenance margin is $7,200 per contract, and you establish a long position of 10 contracts today, where each contract represents 42,000 gallons. Tomorrow, the contract settles down $0.04 from the previous day’s price. Are you subject to a margin call? Why or why not? What is the maximum price decline on the contract that you can sustain without getting a margin call?
Suppose the initial margin on heating oil futures is $8,400, the maintenance margin is $7,200 per contract, and you establish a long position of 10 contracts today, where each contract represents 42,000 gallons. Tomorrow, the contract settles down $0.04 from the previous day’s price. Are you subject to a margin call? Why or why not? What is the maximum price decline on the contract that you can sustain without getting a margin call?
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
Related questions
Question
100%
Suppose the initial margin on heating oil futures is $8,400, the maintenance margin is $7,200 per contract, and you establish a long position of 10 contracts today, where each contract represents 42,000 gallons.
Tomorrow, the contract settles down $0.04 from the previous day’s price. Are you subject to a margin call? Why or why not?
What is the maximum price decline on the contract that you can sustain without getting a margin call?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education