As a speculative trader you are interested in the performance of the Kuala Lumpur Composite Index (KLCI). The last few months you observed the market had a bearish pattern. However, today you believe that the index performance will increasing in the near future. So, you order your broker to trade for RM100 million with the current beta is twice volatile than the market. Assuming you are required to pay initial margin of RM8000/contract and maintain 85% of it, commission is charged at RM105/contract. The table below is the settlement index prices for the following trading days:

Day	Today	1	2	3	4
Settlement Price (Index)	990	1015	980	965	972

Required:

d. Calculate the leverage investment in day 5.

e. Why there is a sudden declining of the price in day 2?

f. Is the speculator achieve his objectives? Elaborate.

Answer rating: 100% (QA)

Answer d The speculator was required to pay a total initial margin of RM85000contract The settlement index price on day 2 is 980 the speculator has to pay RM85000 980990 1000000 RM8274333 The margin c... View the full answer