Suppose an investor has a $1 million long position in T-bond futures. The investor's broker requires a maintenance margin of 4 percent, which is the amount currently in the investor's account.
a. Suppose also that the value of the futures contract drop by $50,000 to $950,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor' account balance (assuming no excess) as a result of the price drop?
b. If the futures contract drop in value the next day by another $40,000, to $910,000, how much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor's account balance (assuming no excess) as a result of the price drop?
c. If, on day 3, the futures contract increases in value by $65,000, to $975,000, how much will the investor be able to withdraw from his account to maintain his margin? What will be the value of the investor's account balance (assuming no excess) as a result of the price drop?
d. Suppose, instead, an investor has a $1 million sh01t position in T-bond future and that the value of the futures contract increases by $50,000 to $1, 050,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor's account balance (assuming no excess) as a result of the price drop?