Futures

manish.g
Good Student
Posts: 10
Joined: Sun May 06, 2012 2:31 pm

Futures

Postby manish.g » Mon May 07, 2012 8:09 pm

Thanks for responding to earlier ques. Some more if you could help.

An investor has a short future contract on the stock of Glaceau Ltd. He entered into the contract at $90.Each contract has 25 stocks with a current market value of $2250. The initial margin for the contract was 800 and maintenance margin is $ 550. At what price of the stock, the investor will get a margin call:
Choose one answer.

a. $80

b. $ 100

c. $ 75

d. $105
The correct answer is C.

i though it should 105 as user is short and it will benifit if stocks goes down.

The no-arbitrage price of a 6 months cotton future is $727, Spot price is $710, risk free rate is 6% and storage cost is 1.5%. What would be the convenience yield for owning the cotton:
Choose one answer.

a. 9.87%

b. 2.77%

c. 1.27%

d. 7.11%
The correct answer is B

Tags:

suresh.wadhwani2009
Finance Junkie
Posts: 99
Joined: Sat Apr 07, 2012 10:24 am

Re: Futures

Postby suresh.wadhwani2009 » Mon May 07, 2012 8:58 pm

Dear manish,

Ans of 1st qn:
Yes you are right. I don’t know the source of the qn but ans is wrong for sure.
As investor is having short position, he will get margin call only when stock price moves up. Currently the market value is $2250, difference between initial margin and maintenance margin is $250. So if stock price move up by $11 (margin account of client will touch $525, margin call), when the market value will be $2525 (loss for investor) investor will get a margin call (25*11=275). So the ans is $105 as that is close after $101.

Ans of 2nd qn:

Fo=So*exp(r+u-y)*T

Where r=risk free rate, u=storage cost, y=convenience yield

So,

727=710*exp(0.06+0.015-y)*0.5

1.024=exp(0.0750-y)*0.5

Log(1.024)=Log[exp(0.075-y)*0.5]

0.023662=(0.075-y)*0.5

As , log(exp)=1

Y= 0.075-0.047323

Y= 0.027677 = 2.77%

Hope it helps

manish.g
Good Student
Posts: 10
Joined: Sun May 06, 2012 2:31 pm

Re: Futures

Postby manish.g » Tue May 08, 2012 7:56 am

perfect ..thanks suresh


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