A futures contract is available on a company that pays an annual dividend of $5 and whose stock is currently pricA futures contract is available on a company that pays an annual dividend of $5 and whose stock is currently priced at $200. Each futures contract calls for delivery of 1,000 shares of stock in one year, daily marking to market, an initial margin of 10% and a maintenance margin of 5%. The current Treasury bill rate is 8%.

(a) Given the above information, what should the price of one futures contract be?

(b) If the company stock decreases by 7%, what will be, if any, the change in the futures price?

(c) As a result of the company stock decrease, will an investor that has a long position in one futures contract of this company realize a gain or a loss? Why? What will be the amount of this gain or loss?

(d) What must the initial balance in the margin account be? Following the stock decrease, what will be, if any, the change in the margin account? Will the investor need to top up the margin account? If yes, by how much and why?

(e) Given the company stock decrease, what is the percentage return on the investors position? Is it higher, equal or lower than the 7% company stock decrease? Why? ed at $200.