A company enters into a long futures contract to buy 75,000 bushels of wheat for 550 cents per bushel. Each contract is for 5,000 bushels of wheat. Assume the initial margin is $2,000 per contract and the maintenance margin is $1,250 per contract.

a) At what futures price will there be a margin call for the holder of the long position?

b) The daily price limit is 35 cents, how large would the gain or loss be if the futures price moved an amount equal to the daily price limit. Does the maintenance margin cover the potential loss if this occurs?

c) Explain the purpose of having margin accounts. (Why were they established and explain how they solve the problem they were designed to address)