The margin requirement on the S&P 500 futures contract is 16%, and the stock index is currently 1,300. Each contract has a multiplier of $250.
Required:
Question 1: How much margin must be put up for each contract sold?
Question 2: If the futures price falls by 1% to 1,287, what will happen to the margin account of an investor who holds one contract?
Question 3: What will be the investor's percentage return based on the amount put up as margin?
Question 4: What would be the current cash balance in the margin account?
Note: Show all workings.