On Aug 26, you sold 10 gold futures contracts at a price of $1298/oz. Each contract represents gold 100 oz. The initial margin is USD 5,000 per contract, and the maintenance margin is USD 4,000 per contract. You deposited the initial margin on Aug 26. The subsequent settlement prices are shown in the table below:

Aug 26	Aug 27	Aug 28	Aug 29	Aug 30	Aug 31
1297	1284	1283	1304	1307	1315

1) Compute the daily loss/gain, and cumulative loss/gain for each date.

2) Suppose you did not withdraw any money from your account during this period, when would you receive a margin call and how much would you have to deposit

to meet the margin call?

2. You manage a $13.5 million portfolio, currently all invested in equities, and has a beta of 1.2. You believe that the market is on the verge of a big but short-lived downturn; you would move your portfolio temporarily into T-bills, but you do not want to incur the transaction costs of liquidating and reestablishing your equity position. Instead, you decide to temporarily hedge your equity holding with S&P 500 index futures contracts.

1) Should you be long or short the contracts? Why?

2) How many contracts should you enter into? The S&P 500 index futures price is

now at 1286 and the contract multiplier is $250.

3) Suppose instead of reducing your portfolio beta all the way down to zero, you

decide to reduce it to 0.5, how many index futures contracts should you enter into?