Calculate the current implied spot price

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Reference no: EM133492017

Case: It is August 20th, and you have just entered a long position in a futures contract. The contract expires on December 20th and calls for the delivery of 600 tons of a commodity. Further, because this is a futures position, it requires posting 35% of the current futures price as the initial margin. The maintenance margin is 20% of the current futures price. Assume that the account is marked to market monthly. The following represent the contract delivery prices (in dollars per ton) that prevail on each settlement date:

August 20th (initiation)

$340.00

September 20th

343.55

October 20th

324.00

November 20th

328.00

December 20th (delivery)

324.50

Required:

Calculate the equity value of your margin account on each settlement date, including any additional equity required to meet a margin call. Also, compute the amount of cash that will be returned to you on December 20th.
5 marks

Calculate the leverage multiplier for the contract.
1 mark

Calculate each month's cumulative total holding period returns and cumulative spot holding period returns.
4 marks

If the investment pays no dividend and requires a storage cost of 2 per cent per annum (of current value), calculate the current (i.e., August 20th) implied spot price for a ton of the commodity and the November 20th implied price for the same ton. In your calculations, assume that an annual risk-free rate of 5 per cent prevails over the entire contract life.

Reference no: EM133492017

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