Your broker requires an initial margin of $2,500 and a maintenance margin of $1,500 on Treasury note futures. Treasury note futures contracts are based on a $100,000 par value and quoted in points and one-half of 1/32 of a point. You own one Treasury futures contract that had a closing settlement quote of 112′165 yesterday. Today, the settlement quote is 111′105. Your margin balance at yesterday's close was $2,100. All margin calls restore margin levels to their initial level. Will you receive a margin call based on today's settlement quote and, if so, for what amount?
A)no margin call
B)call for $1,100.50
C)call for $1,287.50
D)call for $1,587.50
E)call for $1,775.00

Question

Quizplus · Accepted Answer

To calculate the gains or losses, we need to convert the settlement quotes to a dollar value.
Initial value = $100,000 x settlement quote / 100 = $112,515
Current value = $100,000 x settlement quote / 100 = $111,156.25
Loss = $112,515 - $111,156.25 = $1,358.75
As the loss exceeds the maintenance margin, a margin call is required.
The amount of the margin call is the difference between the initial margin and the margin balance.
Margin call = $2,500 - $2,100 = $400
Plus, the amount needed to restore margins to the initial level.
Margin call = $400 + ($2,500 - $1,500) = $1,400
But since the loss is greater than $1,400, the margin call will be for the full loss amount.
Margin call = $1,400 + $1,358.75 = $2,758.75, which is closest to choice D: call for $1,587.50.

Your Broker Requires an Initial Margin of $2,500 and a Maintenance