USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
December futures on the S&P 500 stock index trade at 250 times the index value of 1187.70. Your broker requires an initial margin of 10 percent on futures contracts. The current value of the S&P 500 stock index is 1178.
-Refer to Exhibit 15.14. How much must you deposit in a margin account if you wish to purchase one contract?
A) $267,232.5
B) $29,450
C) $29,692.50
D) $30,000
E) $265,050

Question

Quizplus · Accepted Answer

To calculate the amount needed for the initial margin, we use the formula:
Initial Margin = Futures Price x Contract Size x Margin Requirement
The contract size is 250 times the index value, which is:
250 x 1187.70 = $296,925
The margin requirement is 10%, which is expressed as a decimal:
10% = 0.10
Now we can plug in the values and solve for the initial margin:
Initial Margin = 250 x 1187.70 x 0.10 = $29,692.50
Therefore, the correct answer is choice C: $29,692.50.