Futures Margin Question Easy first, therefore, posting, receive

agulani

A silver futures contract requires the seller to deliver 5,000 Troy ounces of silver. An investor sells one July selver futures contract at a price of $8 per ounce, posting a $2,025 initial margin. If the required maintenance margin is $1,500, the price per ounce at which the investor woudl first receive a maintence margin call is closest to:
A. $5.92
B. $7.89
C. $8.11
D. $10.80
The answer is C. $8.11.
Why is it $8.11?
I eliminated A and B immediately because he is shorting it, therefore the call price has to be above $8.
Then I thought I should use:
Trigger Price = P0 * (1 + Initial Margin %) / (1 + Maintenance Margin %)
When I did this, I kept getting $8.64. Anyone know how to get $8.11?

AndyNZ

Worst comes to worst just plug and chug.

dvilayphet

OK I had all the conceptual stuff right, here is what I was doing wrong:
To calculate initial and maintenance margin %, I would divide the dollars by 5000 instead of (5000*8).
Careless errors, they will be the death of me.
Movado, I think you meant use the SHORT margin call formula, not the Long.

hoangvu90

8((1+2025/40000)/(1+1500/40000))= 8.101 close
additions welcome

iteracom

40000(1.0506)/(1.0375) = 40505/5000 = 8.1

Analyze_This

you supposed to use the Long margin call formula
initial margin % = 2025/$8 times 5000 ounces = .0506
maintenance margin % = 1500/ same above = .0375
plug everything into your formula you’ll get $8.11

transferpricing

You subtract from one if you LONG the position.
You add to one if you SHORT the position.
Even if you subtract from 1, you still don’t get $8.11 unfortunately.

malbec

Edited: Wrong solution, still wasn’t getting 8.11