On Monday morning you sell one June T-bond futures contract at 97:27 or for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700 and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer questions 67 through 70.
-At the close of day Tuesday your cumulative rate of return on your investment is

Question

On Monday morning you sell one June T-bond futures contract at 97:27 or for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700 and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer questions 67 through 70. 
-At the close of day Tuesday your cumulative rate of return on your investment is

Quizplus · Accepted Answer

We need to calculate the change in price of the T-bond futures contract from Monday's sale to Tuesday's close. On Tuesday, the closing price was 97:16, or $97,500. This represents a change in price of 27 ticks or $343.75 (97:27 - 97:16 = 27 ticks x $15.625/tick = $343.75). Since the investor sold the futures contract, they will make a profit if the price decreases, which it did by $343.75. 
To calculate the cumulative rate of return, we divide the profit by the initial margin requirement: ($343.75 / $2,700) * 100% = 12.73%. 
However, we need to take into account that the maintenance margin requirement is $2,000 per contract. The cumulative loss that triggers a margin call is calculated as: (Initial Margin Requirement - Maintenance Margin Requirement) / Contract Value = ($2,700 - $2,000) / $100,000 = 0.7%. Therefore, we need to subtract this amount from the rate of return to account for the possibility of a margin call. 
Cumulative rate of return = 12.73% - 0.7% = 12.03%, which is closest to option B (-5.8%). Note that option A (16.2%) represents the profit without taking into account the maintenance margin requirement, while options C and D do not make sense as they are positive values despite the investor making a profit.

On Monday Morning You Sell One June T-Bond Futures Contract