Consider an Investment in Five S&P 500 Index Futures Contracts

question 15

Multiple Choice

Consider an investment in five S&P 500 Index futures contracts at a price of $924.80.The initial margin requirement is 15.0% and the maintenance margin is 10.0%.If the continuously compounded interest rate is 5.0% what will the futures price need to be for a margin call to occur 10 days from now? Assume no settlement within the 10 days.

• A) $852.64
• B) $872.79
• C) $898.63
• D) $905.25

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Definitions:

Creditors

Individuals or institutions to which money is owed by a person or entity.

Profit Margin

Measures the percentage of each dollar of sales that results in net income; computed by dividing net income by net sales.

Gross Profit

The difference between sales revenue and the cost of goods sold, indicating how efficiently a company is producing or sourcing its products.

Net Income

The amount of money a company earns after subtracting all its expenses from its total revenues.