Question

You purchase an interest rate futures contract that has an initial margin requirement of 15% and a futures price of $124,488. The contract has a $100,000 underlying par value bond. If the futures price falls to $117,500, you will experience a ______ loss on your money invested.

Answer 1

Answer:

Loss of 34.7%

Explanation:

An interest rate futures contract margin has an initial requirement of 15%

The future price is $124,488

The contract has a $100,000 underlying per value bond.

The future price falls to $117,500

The first step is to calculate the margin

= future price×initial margin

= $124,488×15/100

= $124,488×0.15

= $18,673.2

The next step is to calculate the total loss

= future price-fall in future price

= $124,488-$117,500

= $6,988

Therefore, the total percentage loss can be calculated as follows

= Total loss/Margin

= 6,988/18,673.2

= 0.374×100

= 34.7%

Hence a loss of 34.7% will be experienced on the amount of money invested.