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Difficulty: EasyFederal Reserve Board (FRB) and Margin Regulation

An investor purchases 12,00012,000 dollars worth of marginable common stock in a margin account. Under Federal Reserve Board Regulation T, assuming an initial margin requirement of 50%50\%, what is the required initial dollar deposit the investor must make?

Answer: 6000 $

Answer

The required initial margin deposit is $6,000.
Under Federal Reserve Board Regulation T, the initial margin requirement for purchasing marginable equity securities is 50%. For a transaction totaling 12,000,theinvestormustdeposit5012,000, the investor must deposit 50% of the purchase value in cash, resulting in a required deposit of 12,000 \times 0.50 = $6,000.

Step-by-Step Solution

1
Identify trade value.
Purchase value is $12,000.
The total transaction value is given as $12,000.
2
Calculate the Federal Reserve Board Regulation T initial requirement.
12,000×50%=12,000 \times 50\% = 6,000.
Regulation T mandates that investors deposit a minimum of 50% of the total purchase price for equity transactions in a margin account.

Key Concept

Regulation T Initial Margin Requirement
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Topics

Federal Reserve Board (FRB) and Margin Regulation

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