Question: You own a Futures contract that will settle in one month (30 days, 1/12 of a year). Yesterdays closing price for the underlying security was
You own a Futures contract that will settle in one month (30 days, 1/12 of a year). Yesterdays closing price for the underlying security was $99.70. The overnight (daily) interest rate is 0.01% continuously compounded and today you have $100 in your margin account. The only interest rate is the overnight rate.
(a) What was the Futures Price at close yesterday? Assume this equals the Forward Price for an equivalent contract.
How much cash do you have in your margin account at the end of the day in 2 days, in each of the following cases:
Futures Price at close
Today tomorrow 2 days
(b) $120 $110 $100
(c) $100 $100 $100
(d) $80 $90 $100
You probably want to use 4 decimal places to solve questions (b)-(d).
(e) How would the answers above change if there was no interest rate?
(f) What are your conclusions from the answers obtained in (b)-(e)?
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