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Difficulty: EasyMargin Accounts and Borrowing Requirements

An investor opens a new margin account and purchases 100100 shares of stock at $50\$50 per share. According to Federal Reserve Regulation T, what is the minimum required initial margin deposit in dollars?

Answer: 2500 $

Answer

The minimum required initial margin deposit is $2500.
Under Federal Reserve Regulation T, the standard initial deposit requirement for purchasing stock in a margin account is 50% of the total purchase amount. For a transaction of 100 shares at 50pershare(50 per share ( 5,000 total market value), the required initial deposit is 50% of 5,000,whichequals5,000, which equals 2,500. This amount satisfies both Regulation T and FINRA's minimum initial equity requirement of $2,000.

Step-by-Step Solution

1
Calculate total purchase value of the transaction
100 shares×$50=$5000100 \text{ shares} \times \$50 = \$5{}000
Initial margin requirement calculations are based on the total market value of the purchase.
2
Apply Regulation T initial margin requirement percentage
$5000×50%=$2500\$5{}000 \times 50\% = \$2{}500
Federal Reserve Board Regulation T dictates that customers must deposit at least 50% of the trade value for margin transactions.
3
Compare result with FINRA minimum equity rules
$2500≥$2000\$2{}500 \ge \$2{}000
FINRA rules require a minimum initial equity deposit of $2000\$2{}000 (or 100% of purchase price if less than $2000\$2{}000). Since the 50% Regulation T deposit ($2500\$2{}500) exceeds $2000\$2{}000, the full $2500\$2{}500 deposit is required.

Key Concept

Regulation T Initial Margin Requirement
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Topics

Margin Accounts and Borrowing Requirements