Derivatives Question ? HELP!!! Elan mock

CFA Level I
#1

Im stuck please help ? how do you get the deposit, please give me a detailed explanation Thankssssssssssssss --------------------------------------------------------------------------------------------------------------- An investor takes a long position in 7 gold futures contracts at futures price of $1100. these contracts expire in december. each contract is on 32 ounces of gold. required initial margin is $350 per contract and the maintenance margin is $300 per contract. Dec gold furtures rise to $1102 on day 1 , decline to $1098 on day 2 and rise to $1099 on day 3. The amount that he must deposit at the start of day 3 is closest to : a) 98 b)224 c)448

#2

2100 of Maintenance margin and 2450 of Initial Margin Day 1: He gains 2x7x32=448$ ; 2898$ = Ending Initial Margin Day 2: He loses 4x7x32=896$ ; 2002$ = Ending Initial Margin Day 3: Initial Margin is less than Maintenance Margin. Thus to bring it back up to the level of Initial Margin, 2450-2002= 448$ must be deposited.

#3

I got a similar question wrong on the CFAI Morning Mock (Q.96). :smiley:

#4

saradee u scoring above 50% yet… hows the progress coming

#5

Thanks Smileyface :slight_smile: great explanation!!! Thanks for asking pasare! yes i have improved. have done a couple of Elan mocks and im scoring 65%, but my individual scores have all gone up majorly except fixed income its the one really holding me back . i honestly wish i could have started studying differently just wasted alot of time. Its ok will try my best and if not there is always december !!!

#6

ok i just tried to solve a similar question in the previous mock and when the price declined they added it to the initial margin … there has to be a mistake in their answer right??

#7

\An investor takes a short position in 5 oil future contract that expire in July. the futures price equals $82 AND each contract is for 1000 barrells of oil. the initial margin requirement is $750 per contract and the maintenance margin is $650 per contract . July oil futures declines to $81.6 on day 1 , rise to $81.8 on day 2 and decline to $81.4 on day 3. the balance on the investors account at the end of day 2 is closest to: a) 2750 b) 4750 c)3250 They have put b as the correct answer in the mock. \ Isnt it supposed to be a)???

#8

saradee - they investor has taken a SHORT position in the stock, therefore they gain from the decline in price. Therefore, do the opposite of what you did in Elan - and add the gain from the decline to the initial margin.

#9

Thanks gartsy makes alot of sense now :):):slight_smile:

#10

yup…always remember LONG benefits from Price Increase and SHORT benefits from price decrease in these questions. :slight_smile:

#11

@saradee: easy way to remember it: call up | put down there was a list with all these tricks to remember stuff but I can’t find it right now…