1)Today is April 16, 2020. You bought a futures contract on corn for December 2020 delivery. The price is $3.51 per bushel. The contract size is 5,000 bushels.You are required to establish a margin account that has cash equivalent to 6% of the value of the contract and you must restore the margin back to 6% once the cash in the margin account drops below 2.5% or less.

a)How much cash you must provide upfront in the margin account to purchase the contract? (1 marks)

b) On April 17, 2020, the price of corn for December 2020 delivery drops to $3.30 per bushel? Would you receive a margin call and if yes, how much additional cash would you be required to deposit? Show calculations. (4 marks)

Answer rating: 100% (QA)

Answer a To calculate how much cash you must provide upfront in the margin account to purchase the c... View the full answer