Answer:
A.$2.7
B.$2.2
Explanation:
250 cents = $2.5
Therefore to have a margin call, if one contract has to lose means:
Loss=initial margin−maintenance margin
$3,000−$2,000=$1,000
The margin call if the contract has to lose more than $1,000
Since entering into a short futures contract to sell 5,000 bushels of wheat for 250 cents per bushel, the price change lead to a margin call is:
magin lcall=($2.5−Pt)x5,000
−$1,000=($2.5−Pt)x5,000
Pt=1,000/5,000+2.5=$2.7
The future price of contract rises by $0.2 from $2.5 to $2.7 per bushel which will lead to a margin call.
B.Under what circumstances could $1,500 be withdrawn from the margin account?
The contract is gained $1,500 when we could withdraw $1,500 from the margin account. Hence :
Profit=($2.5−Pt)x5,000
$1,500($2.5−Pt)x5,000
Pt=2.5−1,5005,000=$2.2
Therefore, to withdraw from the margin account, the future price must falls by 30 cents from $2.5 to $2.2
