Suppose an investor has a $1 million long position in T-bond futures.

The investor’s broker requires a maintenance margin of 4 percent, which is the amount currently in the investor’s account. (LG 10-2)

a. Suppose also that the value of the futures contract drops by $50,000 to $950,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor’s account balance (assuming no excess) as a result of the price drop?

b. If the futures contract drops in value the next day by another

$40,000, to $910,000, how much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor’s account balance (assuming no excess) as a result of the price drop?

c. If, on day 3, the futures contract increases in value by $65,000, to

$975,000, how much will the investor be able to withdraw from his account to maintain his margin? What will be the value of the investor’s account balance (assuming no excess) as a result of the price drop?

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d. Suppose, instead, an investor has a $1 million short position in Tbond futures and that the value of the futures contract increases by

$50,000 to $1,050,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor’s account balance (assuming no excess) as a result of the price drop? LO.1