Question

A company enters into a long futures contract to buy 1,000 units of a commodity for $60 per unit. The initial margin is $6,000 and the maintenance margin is $4,000. What futures price will allow $2,000 to be withdrawn from the margin account

Answer 1

$62

Step-by-step explanation:

Given that

Units = 1000

Price per unit = 60

Future price drawn/loss = 2000

Thus

1000 (x - 60 ) = 2000

Where x = future price

x - 60 = 2000/1000

x - 60 = 2

x = 60 + 2

x = $62

Thus, future price that will allow the withdrawal of 2000 is $62.

Note, each $1 increase in future prices leads to $1000 gain. When future price therefore increases by $2, gain gotten will be therefore $2000 and this can be withdrawn. Intial price was $60, thus, future for 2000 withdraw = 60 + 2 = $62.