Suppose on March 4th, 2018, Zouzoukwazie took a long position in 6 contracts to buy crude oil at $56 per barrel to be delivered very early in the morning of June 4th, 2018. Each contract size is equal to 1,000 barrels. Suppose deposit do not earn any interest so future value and prevent value remain the same. Column 2 of the table below gives the settlement prices of crude oil at the end of the day for various days for a similar contract to be settle on June 4th, 2018. The contract he signed requires that you open a margin account where everyday profits and losses will be credited to his margin account. (a) How much money will the seller be getting from this contract? (3pts) (b) Zouzoukwazie is required to put initially in his margin account a minimum of 10% of the purchasing price of this contract. How much cash or risk-free securities would he have to deposit to satisfy an initial margin of 10%? (2pts) (c) Write the table above on your exam sheet and fill up the values for your daily gain/loss, cumulative gain loss, and the margin account balance at the end of the day. Daily gain/loss are computed based on today's market value Date Settlement Price Daily Cumulative Margin Account Gain/Loss Gain/Loss Balance Date $56.05 $53.18 $52.40 $49.89 $51.75 March 5 March 6 March 7 March 8 March 9 March 12 March 13 March 14 March 15 March 16 $53.24 $51.66 $50.31 $52.82 $53.35 opposed to yesterday's market value. That money is debited (if negative) or credited (if positive) to his account margin everyday. (12pts) (d) Under the contract in (c), if Zouzoukwazie decides to settle the contract on March 16 by selling the contract back on the market at the end of the day on March 16 at the price available on that day, how much must he come up with to pay the seller on that date if it is decided that whatever remains in his margin account will be automatically credited to the seller? (2pts) (e) Assume now that Zouzoukwazie is required to maintain the margin account at a certain minimal level, called maintenance margin. That is, his margin account should never get below the maintenance level for more than a day. For that, he has less than a day to find some money and put that money back into his margin account. If the maintenance margin requirement specifies keeping at least 75% of the initial margin, how much money should always at least be in Zouzoukwazie's margin account at all times? (2pts) (f) If the margin account gets below the maintenance margin, Zouzoukwazie get a call (margin call) from his broker and he would have to find money to put back in his banking account to reach the initial margin account level required by the contract computed in (b). If not, his contract will be sold to someone else on the market and he would be liable for any market price loss. In addition he would be sued in the court for breach of the contract. Discuss when a margin calls will be issued to Zouzoukwazie and how much he would need to put back in his margin account to top it to its initial margin level, and the new margin account balance. For this, you are going to have to rewrite the table above on your exam sheet and add two new columns to it and recompute the margin account balance of the table above taking into account margin call. The two columns to add are the margin call (yes or no) and the amount of money to add back to the account. These columns should be just before the account margin balance column. (14pts) (g) Under the contract in (e), Zouzoukwazie wants to settle the contract on March 16, how much must he come up with to pay the seller on that date if it is decided that whatever remains in his margin account will be automatically credited to the seller? (2pts) Suppose on March 4th, 2018, Zouzoukwazie took a long position in 6 contracts to buy crude oil at $56 per barrel to be delivered very early in the morning of June 4th, 2018. Each contract size is equal to 1,000 barrels. Suppose deposit do not earn any interest so future value and prevent value remain the same. Column 2 of the table below gives the settlement prices of crude oil at the end of the day for various days for a similar contract to be settle on June 4th, 2018. The contract he signed requires that you open a margin account where everyday profits and losses will be credited to his margin account. (a) How much money will the seller be getting from this contract? (3pts) (b) Zouzoukwazie is required to put initially in his margin account a minimum of 10% of the purchasing price of this contract. How much cash or risk-free securities would he have to deposit to satisfy an initial margin of 10%? (2pts) (c) Write the table above on your exam sheet and fill up the values for your daily gain/loss, cumulative gain loss, and the margin account balance at the end of the day. Daily gain/loss are computed based on today's market value Date Settlement Price Daily Cumulative Margin Account Gain/Loss Gain/Loss Balance Date $56.05 $53.18 $52.40 $49.89 $51.75 March 5 March 6 March 7 March 8 March 9 March 12 March 13 March 14 March 15 March 16 $53.24 $51.66 $50.31 $52.82 $53.35 opposed to yesterday's market value. That money is debited (if negative) or credited (if positive) to his account margin everyday. (12pts) (d) Under the contract in (c), if Zouzoukwazie decides to settle the contract on March 16 by selling the contract back on the market at the end of the day on March 16 at the price available on that day, how much must he come up with to pay the seller on that date if it is decided that whatever remains in his margin account will be automatically credited to the seller? (2pts) (e) Assume now that Zouzoukwazie is required to maintain the margin account at a certain minimal level, called maintenance margin. That is, his margin account should never get below the maintenance level for more than a day. For that, he has less than a day to find some money and put that money back into his margin account. If the maintenance margin requirement specifies keeping at least 75% of the initial margin, how much money should always at least be in Zouzoukwazie's margin account at all times? (2pts) (f) If the margin account gets below the maintenance margin, Zouzoukwazie get a call (margin call) from his broker and he would have to find money to put back in his banking account to reach the initial margin account level required by the contract computed in (b). If not, his contract will be sold to someone else on the market and he would be liable for any market price loss. In addition he would be sued in the court for breach of the contract. Discuss when a margin calls will be issued to Zouzoukwazie and how much he would need to put back in his margin account to top it to its initial margin level, and the new margin account balance. For this, you are going to have to rewrite the table above on your exam sheet and add two new columns to it and recompute the margin account balance of the table above taking into account margin call. The two columns to add are the margin call (yes or no) and the amount of money to add back to the account. These columns should be just before the account margin balance column. (14pts) (g) Under the contract in (e), Zouzoukwazie wants to settle the contract on March 16, how much must he come up with to pay the seller on that date if it is decided that whatever remains in his margin account will be automatically credited to the seller? (2pts)