A Company Enters into a Short Futures Contract to Sell

question 19

Multiple Choice

A company enters into a short futures contract to sell 50,000 units of a commodity for 70 cents per unit.The initial margin is $4,000 and the maintenance margin is $3,000.What is the futures price per unit above which there will be a margin call?

• A) 78 cents
• B) 76 cents
• C) 74 cents
• D) 72 cents

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Definitions:

Loan

A sum of money that is borrowed, typically from a financial institution, which is expected to be paid back with interest.

Effective Annual Rate

The interest rate that reflects the compound interest rate paid or earned on an investment, loan, or other financial product over a year.

Compounding Periods

The frequency with which interest is added to the principal balance of an investment, affecting its overall future value.

Time Value

The principle that money in hand today has a greater value than an identical sum received in the future because of its ability to earn more over time.