USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A futures contract on Treasury bond futures with a December expiration date currently trade at 103:06. The face value of a Treasury bond futures contract is $100,000. Your broker requires an initial margin of 10 percent.
-Refer to Exhibit 15.8. If the futures contract is quoted at 105:08 at expiration, calculate the percentage return.
A) 1.99 percent
B) 19.99 percent
C) 20.62 percent
D) 25.37 percent
E) -13.65 percent

Question

Quizplus · Accepted Answer

The initial price of the futures contract is 103:06, which means 103 and 6/32 percent of $100,000, or $103,187.50. The final price is 105:08, which means 105 and 8/32 percent of $100,000, or $105,250. The profit is the difference between the final and initial prices, which is $2,062.50. The initial margin is 10 percent of the initial price, which is $10,318.75. The percentage return is the profit divided by the initial margin, which is ($2,062.50 / $10,318.75) * 100 = 19.99 percent.