George purchased a futures contract at 349. The contract is on 2500 units, requires a 10% margin deposit and is priced in cents per unit. George sold the contract at 278. What is George's return on invested capital?
A) -255.4%
B) -203.4%
C) -155.4%
D) -103.4%

Question

Quizplus · Accepted Answer

George's return on invested capital can be calculated by first determining the profit or loss from the transaction and then dividing that by the initial margin deposit. The initial purchase was at 349 cents per unit, and the contract was sold at 278 cents per unit. This results in a loss of 71 cents per unit (349 - 278 = 71). Since the contract is for 2500 units, the total loss is 71 cents * 2500 units = 177,500 cents or $1,775. The initial margin deposit required for the contract was 10% of the initial value, which is 10% of (349 cents * 2500 units) = $872.50. The return on invested capital is the loss divided by the initial margin deposit: ($1,775 / $872.50) * 100% = -203.4%.

George Purchased a Futures Contract at 349