The futures price of gold is $1,250. Future contracts are for 100 ounces of gold, and the margin requirement is $5,000 a contract. The maintenance margin requirement is $2,500. You expect the price of gold to go down; therefore you short one gold future contract at the prevailing price of $1,250.
a. How much must you initially remit in order to be able to short gold future?
b. If future price of gold rises to $1,265, do you make a profit or loss?
c. Estimate your profit or loss both in dollar and in percent if future gold price goes up to 1,265.
d. If the future price of gold declines to $1,230, estimate your profit or loss