Use the information given to answer the following 5 questions based on the case study Case Study .

You have been approached by a client who believes that the gold price will increase over the next few days. They would therefore like to buy two gold futures contracts. The contracts are worth $400 per ounce. After some research you provide the client with the following information:

- The contract size is 100 ounces (the client has therefore bought 2 contracts - 200 ounces).

- The initial margin is $2000 per contract

- The maintenance margin is $1500 per contract.

- The contract is entered into on the morning of June 5 and will close on June 13.

The client is happy and enters into this agreement. At the end of each trading day, the account is then mark-to-market.

At the end of trading on June 5th the futures price is now $397 per ounce.

The futures prices on:

6 June 396.10

9 June 398.20

10 June 397.10

11 June 396.70

12 June 395.40

13 June 393.30

True/False

1.The Maintenance margin is $1500 per contract, therefore on the June 13th the account is the client will receive a margin call

Multiple Choice

1. You purchased one corn future contract at $2.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

A. $950 profit

B. $95 profit

C. $950 loss

D. $95 loss

E. None of these is correct.

2. You sold one corn future contract at $2.29 per bushel. What would be your profit (loss) at maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.

A. $950 profit

B. $95 profit

C. $950 loss Line A Line B

D. $95 loss

E. None of these is correct

3. Given a stock index with a value of $1,125, an anticipated dividend of $33 and a risk-free rate of 4%, what should be the value of one futures contract on the index?

A. $1137.00

B. $1070.00

C. $993.40

D. $995.09

E. $1000.00

4.. If there are no storage costs, the expected 1-year forward price of gold is $390 and the risk-free is 4%p.a., at what price is gold trading in the spot market?

A. $350

B. $355

C. $375

D. $390

5. The 1-year risk free rate is 5.0% and there are no storage costs. If the spot price of gold is $390 and the 1-year forward price is $409.50, your arbitrage profits by selling gold futures is closest to?

A. $20

B. $15

C. $10

D. $0