The Chicago Board of Trade has just introduced a new futures contract on Brandex stock, a company that currently pays no dividend. Each contract calls for delivery 1,000 shares of stock in one year. The risk-free rate is 6% per year semi-annual compounding. An investor has shorted 2 futures contracts.

a. If current Brandex stock sells at $120 per share, what should the futures price be?

b. If the Brandex price drops by 3% immediately, what will be the change in the futures price and the change in the investor's margin account?

c. Assume the volatility of Brandex stock increases 20%, how does it impact its future price? How does it impact investor's margin account requirement?