Sulfur will float, and iron will sink because each will retain its properties.
“Iron will float, and sulfur will sink because each will lose its properties” is incorrect. A substance will lose its properties only if it reacts to form a new substance.
“Both will float because they are physically mixed” is incorrect. The substances in a mixture retain their properties.
“Both will float because they react chemically” is incorrect. Iron and sulfur do not react at room temperature. Even if they did, the iron sulfide would sink.