Question

The margin requirement on the S&P 500 futures contract is 10%, and the stock index is currently 1,200. Each contract has a multiplier of $250.

a. How much margin must be put up for each contract sold?

Margin            $   

b. If the futures price falls by 2% to 1,176, what will happen to the margin account of an investor who holds one contract? (Input the amount as a positive value.)

Margin account (Click to select)increasesdecreases by $ .

c-1. What will be the investor's percentage return based on the amount put up as margin? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Percentage return             %

c-2. What would be the current cash balance in the margin account?

Cash balance            $

Answer 1

a)	Calculation Of Margin must be for each contract sold
	Value of one contract = stock index * multiplier
		=	$1200*250
		=	$   3,00,000
	Therefore margin = $300000*10%
		=	$       30,000
b)	Future Contract Amount Decreased to 1176
	The net decrease in margin account
		=Stock Index - Decreased Stock Index
			=$1200-1176
			=$24
	The stock index price will decrease by =$24*250
		=$6,000
c1)	Return based on the amount put up as margin
		= Loss In Value / Margin Amount *100
		=-6000/30000*100
		=-20%
c2)	Cash Balance In Margin Account
		=$30000 -6000
		=$24000