Question

You buy a Treasury futures contract with a face value of $100,000 at par. Your initial margin is 10%. The maintenance margin is 4%. The MD on the underlying bond is 8 years. Tomorrow the interest rate on the bond rises by 100 bps. What is the balance in your margin account (assuming you do not renege on the contract or take out excess funds)?

Answer 1

Answer - $2000 Left in Margin Account

Calculation :-

Step 1 - Calculate The Initial Margin Deposited :-

Initial Margin Deposited = $100,000 x 10%

Initial Margin Deposited = $10000

Step 2 - Calculate the Amount of Loss :-

MD of Underlying bond is 8 means if the interest rate rises by 1%, the Value of our Futures contract will decrease by 8%.

Therefore;

Loss on Futures contract = $100000 x 8%

Loss on Futures contract = $8000

Step 3 - Calculate the balance left in margin account :-

balance left in margin account = Initial Margin Deposited - Loss on Futures contract

balance left in margin account = $10000 - $8000

balance left in margin account = $2000