Consider futures on silver, price in dollars per ounce ($/oz). The spot price on Feb 15 is $400/oz, with a futures contract price of $412.12 for delivery on May 15. Assume the interest rate r is fixed and compounded monthly. (a) [1pt] If the futures price on Feb 15 is described by a forward with no carrying cost, what is the interest rate? (b) (1pt] You take a short position on 5 units of futures with delivery May 15. Are you buying or selling silver on May 15? (this answer affects the results of ()). (c) [1pt) What is the total dollar amount of the contract? (d) (1pt] The margin account requires an initial amount of 10% of the value of the contract. How much do you put in the margin account? (e) [2pts) As time passes, the futures price for silver has values listed in the table below. There is no minimum maintenance level for the margin account, and the margin account does not earn interest. Give the change to the margin balance (mark to market) and margin account balance each month. Note both entries in the first row are the answer from (d). date F change (show work here) balance Feb 15 412.12 Mar 15 410.00 Apr 15 400.00 May 15 390.00 (f) [2pts] On May 15 the futures contract is executed. Determine the net profit from Feb 15 through May 15, including initial margin account balance, ending margin account balance, amount paid/received for the sale, and value of silver purchased/sold. (g) 12pts If you chose not to enter into the futures contract on Feb 15, what would your net profit be from Feb 15 through May 15? Include interest on money that you would have put into the margin account, and any change in value of the silver if were going to sell it as part of the futures contract. Consider futures on silver, price in dollars per ounce ($/oz). The spot price on Feb 15 is $400/oz, with a futures contract price of $412.12 for delivery on May 15. Assume the interest rate r is fixed and compounded monthly. (a) [1pt] If the futures price on Feb 15 is described by a forward with no carrying cost, what is the interest rate? (b) (1pt] You take a short position on 5 units of futures with delivery May 15. Are you buying or selling silver on May 15? (this answer affects the results of ()). (c) [1pt) What is the total dollar amount of the contract? (d) (1pt] The margin account requires an initial amount of 10% of the value of the contract. How much do you put in the margin account? (e) [2pts) As time passes, the futures price for silver has values listed in the table below. There is no minimum maintenance level for the margin account, and the margin account does not earn interest. Give the change to the margin balance (mark to market) and margin account balance each month. Note both entries in the first row are the answer from (d). date F change (show work here) balance Feb 15 412.12 Mar 15 410.00 Apr 15 400.00 May 15 390.00 (f) [2pts] On May 15 the futures contract is executed. Determine the net profit from Feb 15 through May 15, including initial margin account balance, ending margin account balance, amount paid/received for the sale, and value of silver purchased/sold. (g) 12pts If you chose not to enter into the futures contract on Feb 15, what would your net profit be from Feb 15 through May 15? Include interest on money that you would have put into the margin account, and any change in value of the silver if were going to sell it as part of the futures contract
