Question 2.

Sitting on a beach in Florida early in May, a savvy investor recognizes that the sun beating down indicates a banner year for the US corn crop, which in turn portends an excess supply.

Basic supply and demand analysis suggested to her that the corn price was very likely to go down. But the Farmer's Almanac had predicted a wet and rainy summer, which convinced many corn analysts that corn prices would be climbing throughout the summer.

To take advantage of this sun-inspired observation, our savvy investor sold short three contracts of August corn futures. The price per bushel was $3.24, and each contract was for 10,000 bushels.The initial margin deposit is $6000 per contract with the maintenance margin at $4500.

1.How much did the investor have to deposit on the investment?

2.The prices of the futures on the four days following the short sales were 3.21, 3.22, 3.30, and 3.31. Calculate the current balance on each of the next four days.

3.If the investor closed out her position at the end of the fourth day, what was her final gain or loss over the four days in dollars and as a percentage of investment?

4.If the investor kept her position, and the futures price on the fifth day was 3.40, would the investor face a margin call? If yes, how much would she need to put up?