FUTURES

Use the following information to answer Questions 7 to 12:

Alfred takes the short position on 10 oil futures contracts at a futures price of $75

per barrel. Each contract is on 1,000 barrels of oil. Settlement prices on the next 4

days are given as follows:

Day Price

1 $75.50

2 $79

3 $77

4 $75

The exchange enforces an initial margin requirement of 10% and a maintenance

margin of 5%.

7. The value of each contract at inception is closest to:

A. $75,000

B. $75,500

C. $75

8. The minimum amount that Alfred must deposit in his futures margin account to

take his desired position is closest to:

A. $75,000

B. $37,500

C. $750,000

9. The maximum amount that Alfred can withdraw from his futures margin

account at the end of Day 2 and keep his position open at the same time is closest to:

(Assume that he deposited the minimum amount required at contract inception

and did not deposit any more money into his account).

A. Zero

B. $10,000

C. $5,000

10. If Alfred closes out his position at the end of Day 3, the total amount of

money in his account would be closest to?

A. $55,000

B. $97,500

C. $95,000

11. Assuming that Alfred withdraws no money from his account, meets all margin

calls and closes his position at the end of Day 4, the balance in his account would

be closest to?

A. $75,000

B. $115,000

C. $77,500

12. Assuming that Alfred withdraws the entire excess margin from his account at

the end of Day 3, the balance in his account at the end of Day 4 is closest to:

A. $115,000

B. $75,000

C. $95,000

Use the following information to answer questions 20-24:

An investor takes a long position in 10 July Oil futures contracts at a price of $85

per barrel. Each contract is for 1,000 barrels of oil. The required initial margin is

$800 per contract and the maintenance margin is $600 per contract.

July Oil futures decline to $84.5 on Day-1, rise to $84.7 on Day-2 and decline to

$84.3 on Day-3.

20. What is the balance in the investors account at the end of the first day?

A. $3,000

B. $13,000

C. $5,000

21. What amount is the investor required to deposit at the start of the second day?

A. $3,000

B. $8,000

C. $5,000

22. What is the balance in the investors account at the end of the second day?

A. $11,000

B. $10,000

C. $5,000

23. How much can the investor withdraw at the end of the second day?

A. $10,000

B. $2,000

C. $4,000

24. Suppose that the investor withdraws half of what he is entitled to withdraw

from his account on the second

day, how much is the balance in his account at the end of the third day?

A. $5,000

B. $7,000

C. $14,000