Examkin

Question

Difficulty: EasyMargin Accounts and Borrowing Requirements

A customer opens a new margin account and purchases 100100 shares of ABC common stock at $80\$80 per share. Under Regulation T, how much cash must the customer deposit to meet the initial margin requirement?

Answer: 4000 $

Answer

The customer must deposit $4,000 in cash.
Under Federal Reserve Regulation T, the initial margin requirement for purchasing stock is 50% of the total trade value. For a purchase of 100100 shares at $80\$80 per share, the total purchase value is $8,000\$8,000. Calculating 50% of $8,000\$8,000 yields a required cash deposit of $4,000\$4,000. Because $4,000\$4,000 exceeds the FINRA initial minimum deposit threshold of $2,000\$2,000, the customer must deposit $4,000\$4,000.

Step-by-Step Solution

1
Calculate the total market value of the purchase.
100×$80=$8,000100 \times \$80 = \$8,000
Initial margin requirement calculations are based on the total transaction value.
2
Apply the Federal Reserve Regulation T initial requirement rate.
50\% \times \8,000=$4,0008,000 = \$4,000
Regulation T mandates a 50% initial deposit for marginable stock purchases.
3
Verify against the FINRA initial minimum equity requirement.
\4,000≥$2,0004,000 \ge \$2,000
The customer must deposit the greater of Regulation T (50%) or the FINRA minimum ($2,000).

Key Concept

Regulation T Initial Margin Deposit Requirement
Rate this question

Topics

Margin Accounts and Borrowing Requirements