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Case: It is August 20th, and you have just entered a long position in a futures contract. The contract expires on December 20th and calls for the delivery of 600 tons of a commodity. Further, because this is a futures position, it requires posting 35% of the current futures price as the initial margin. The maintenance margin is 20% of the current futures price. Assume that the account is marked to market monthly. The following represent the contract delivery prices (in dollars per ton) that prevail on each settlement date:
August 20th (initiation)
$340.00
September 20th
343.55
October 20th
324.00
November 20th
328.00
December 20th (delivery)
324.50
Required:
Calculate the equity value of your margin account on each settlement date, including any additional equity required to meet a margin call. Also, compute the amount of cash that will be returned to you on December 20th. 5 marks
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