Question: Need help in solving the empty box. The answer is not zero. At time t-1, after his contract was marked to market, Mr. S holds

 Need help in solving the empty box. The answer is not

Need help in solving the empty box. The answer is not zero.

At time t-1, after his contract was marked to market, Mr. S holds a futures contract to purchase one unit (5000 bushels) of corn for delivery on Mar. 31 at 2.07 dollars per bushel. Also at time t-1, Mr. S has 650 dollars in his margin account. The brokerage requires a maintenance margin of 600 dollars. At the t-1 price, the cost of purchasing one unit of corn would be 10350 dollars At time t-2, the futures price to purchase one unit of corn for delivery on Mar. 31 drops to 2.05 dollars per bushel At the t-2 price, the cost of purchasing one unit of corn would be 10250 dolkr The profit (loss if negative) of purchasing one unit of corn at 2.07/bu instead of purchasing at 2.05/bu is dollars If Mr. S wanted someone else to take over his contract at the moment, he would need to pay that person to do so Since Mr. S has signed a futures contract, he has authorized his brokerage to change his contract price and to simultaneously add or subtract funds from his margin account. At t-2, the brokerage "marks to market" all futures contracts. For Mr. S's contract, the price is changed from dollars/bu to 2.05 dollars/bu and adds (or subtracts) from his margin account: the margin account is changed from 650 dollars to 550 dollar Since Mr. S's margin account has fallen below the maintenance level of dollars. the brokerage issues a margin call, requesting that Mr. S deposit additional funds in his margin account. Mr. S decides instead to give up his position. Assuming he had deposited 800 dollars in his margin account at t-0 when he starting trading, his profit(loss if negative) for the two-day experience is dollkr. -250

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!