The margin requirement on the S&P 500 futures contract is 16%, and the stock ind
ID: 2724812 • Letter: T
Question
The margin requirement on the S&P 500 futures contract is 16%, and the stock index is currently 1,400. Each contract has a multiplier of $250.
What will be the investor's percentage return based on the amount put up as margin? c-2.)
a.) How much must you deposit with your broker to trade the contract? B.) If the futures price falls by 2% to 1,372, what will happen to the margin account of an investor who holds one contract? c-1.)What will be the investor's percentage return based on the amount put up as margin? c-2.)
What would be the current cash balance in the margin account?
Explanation / Answer
Part a)
Dollar value of index = multiplier x stock index
= 250 x 1400
= 350,000
Amount to deposit = dollar value of index x margin requirement
= 350,000 x 16%
= 56,000
Part b)
Decrease in futures price = 1400 – 1372
= 28
Decline in margin account = 28 x250
= 7,000
Balance in margin account = 56000 -7000
= 49,000
Part c)
Percentage return = Ending balance / Beginning balance -1
= 49000 / 56000 -1
= -12.50%
c-2)
Balance in margin account = 56000 -7000
= 49,000
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