1. Mechanics of futures contracts

You have just entered into 10 short futures contracts to supply cocoa in three months. Each ton costs USD 2,300. The initial margin requirement is 5%. The maintenance margin requirement is 75% of the initial margin requirement. Assume each contract is for 10 tons of cocoa.

1. How much must you put up in initial margin?
2. If the three-month cocoa price rises to USD 2,450 on Day 1, how much equity is in your account at the close of this day? Any comment?
3. If the price of cocoa subsequently fell to USD 2,150 per ton on Day 2, how much equity would be in your account at the close of Day 2?

2. Forward Contracts

1. A one-year long forward contract on a non-dividend-paying stock is entered into when the stock price is GHS 50 and the risk-free rate is 24% p.a. What are the forward price and the initial value of the contract?

2. Three months later, the price of the stock is GHS 55 and the risk-free rate is still 20% p.a. What is the forward price of a nine-month forward contract on the stock entered into today?

3. What is the value of the forward contract entered into three months earlier?