You are selling a corn futures contract where the current spot price per bushel is $4.00. The contract will expire in three months, and the current risk-free rate is 5%. The contract requires delivery of 5,000 bushels of corn, and you must put up 15% initial margin, with 10% maintenance margin.

Question

1. What is the current futures price on this contract?

2. How much will you be required to place into your margin account?

3. If the price of corn drops to 3.98 the next day on the spot market, what will be the gain or loss to your margin account?

4. If you closed your account after that first day by going long the same futures contract (a reversing trade), what will be the percent profit or loss you earned on this investment?

Thank you.