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Question

Difficulty: EasyMargin Accounts and Borrowing Requirements

Under Federal Reserve Board Regulation T, what is the standard initial margin requirement for an investor purchasing marginable common stock in a margin account?

  1. 50% of the total purchase priceAnswer
  2. B
    25% of the total purchase price
  3. C
    30% of the total purchase price
  4. D
    100% of the total purchase price

Answer

Under Regulation T set by the Federal Reserve Board, the standard initial margin deposit requirement for purchasing marginable common stock is 50% of the total purchase value.
Federal Reserve Board Regulation T dictates that customers must deposit a minimum of 50% of the trade value when opening a long margin position in marginable equity securities.

Step-by-Step Solution

1
Identify the governing regulatory rule for initial borrowing limits on equity securities.
Federal Reserve Board Regulation T sets initial margin requirements for broker-dealer credit extended to customers.
Regulation T determines how much cash or equity a customer must deposit when initiating a margin trade.
2
Determine the required initial equity percentage for purchasing marginable stock.
The initial requirement is 50% of the purchase amount.
The customer must pay for at least half of the trade value, allowing the broker-dealer to loan the remaining half.

Key Concept

Regulation T Initial Margin Requirement
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Topics

Margin Accounts and Borrowing Requirements