You purchase five futures contracts at a price of $4.32 on 15,000 bushels and an initial margin of $4,500. If the maintenance margin is $3,800, at what price change will you receive a margin call?
A) A price decrease of $0.047.
B) A price increase of $0.038.
C) A price increase of $0.051.
D) A price increase of $0.047.
E) A price decrease of $0.038.

Question

Quizplus · Accepted Answer

EA margin call occurs when the account balance falls below the maintenance margin. The initial margin is $4,500, and the maintenance margin is $3,800, so the account can lose $700 ($4,500 - $3,800) before a margin call is triggered. Each contract is for 15,000 bushels, so the total is 75,000 bushels (5 contracts * 15,000 bushels/contract). To find the price change that would result in a $700 loss, divide the loss by the total number of bushels: $700 / 75,000 bushels = $0.00933 per bushel. However, since futures contracts typically move in minimum increments (e.g., $0.01), the actual price change that could trigger a margin call would be slightly larger than the calculated value. The closest options provided that would result in a margin call due to a decrease or increase in price are:- A price decrease of $0.047 (Option A) and a price decrease of $0.038 (Option E). These options represent potential price changes that could decrease the value of the position enough to trigger a margin call. However, the correct calculation based on the given numbers should result in a smaller price change needed to trigger a margin call. The discrepancy suggests a misunderstanding in the calculation or a simplification for the purpose of the question. Given the options, A and E are chosen based on the logic of needing a price decrease to trigger a margin call when holding a long position, but the exact figures provided do not align perfectly with the calculated $0.00933 per bushel.

You Purchase Five Futures Contracts at a Price of $4