QUESTION 2 (24 MARKS)

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:

1. Determine the contract value, initial margin and maintenance margin.
2. Prepare a complete marked-to-market position based on the above information.
3. If the trader decides to close-out his position on day 5 at RM995, calculate his realised profit or loss.