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. (Assume that the initial margin requirement is the same as the maintenance margin requirement.)
a. Suppose also that the value of the futures contract drops 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 short 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?