Adequate information: The required maintenance margin = $2500 Initial margin posted by Jerry Harris = $6000 Price per July silver futures contract = $28/ounce Total amount of silver a silver contract includes = 5000 ounces To construct: First price per ounce at which Harris would receive a maintenance margin call. Introduction: A maintenance margin at 25% means that there must be a minimum amount of equity valued at 25% or more of the total value of the margin account. If one or more securities in the account falls below a certain price and these requirements are not met, the investor receives a margin call, sometimes known as a "fed call."

Question

Want to see the full answer?

Answer 1

Question

Chapter 21, Problem 4CP

Summary Introduction

Adequate information:

The required maintenance margin = $2500

Initial margin posted by Jerry Harris = $6000

Price per July silver futures contract = $28/ounce

Total amount of silver a silver contract includes = 5000 ounces

To construct:

First price per ounce at which Harris would receive a maintenance margin call.

Introduction:

A maintenance margin at 25% means that there must be a minimum amount of equity valued at 25% or more of the total value of the margin account. If one or more securities in the account falls below a certain price and these requirements are not met, the investor receives a margin call, sometimes known as a "fed call."

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

A stock index is currently trading at 50. Paul Tripp, CFA, wants to value 2-year index options using the binomial model. The stock will either increase in value by 20% or fall in value by 20%. The annual risk-free interest rate is 6%. No dividends are paid on any of the underlying securities in the index.a. Construct a two-period binomial tree for the value of the stock index.b. Calculate the value of a European call option on the index with an exercise price of 60.c. Calculate the value of a European put option on the index with an exercise price of 60.d. Confirm that your solutions for the values of the call and the put satisfy put-call parity.

In a financial market a stock is traded with a current price of 50. Next period the price of the stock can either go up with 30 per cent or go down with 25 per cent. Risk-free debt is available with an interest rate of 8 per cent. Also traded are European options on the stock with an exercise price of 45 and a time to maturity of 1, i.e. they mature next period. Calculate the price of a put option by RNVR.

Optival’s stock is currently trading at $60 per share with a historical volatility of 20%. The risk-free rate is 4%. Consider a European call and put option on Optival’s stock with an exercise price of $55 that expires in 2 years. Use excel or a similar program to determine the option price using the Black-Scholes formula. (a): What is the value the European call and put option on Optival’s stock with a strike price of $60? (b): To the nearest cent, how much does the option value change for the following adjustments to the input values: ∆ in Call Value ∆ in Put Value ↑ stock price by $1 to $61 ↑ strike price by $1 to $56 ↑ the rF by 1% to 5% ↑ volatility by 1% to 21% ↑ time to maturity by 1 yr (c): Why does the value of the call increase by less than $1 when the stock price increases by $1? (d): To the nearest percent and holding all else constant, how high would the risk-free rate need to be for a 1 year increase in time to maturity to have a negative impact on the value of…