All practice questions

Question 41Question →

An open-end mutual fund has total assets of $\$50,000,000$ and total liabilities of $\$5,000,000$ . If the fund currently has $3,000,000$ shares outstanding, what is its Net Asset Value (NAV) per share?

Show answer & explanation

Answer: 15

Answer

The Net Asset Value (NAV) per share is $15.00.

The Net Asset Value (NAV) per share represents the net value of one share of an investment company. It is calculated using the formula:

\text{NAV per share} = \frac{\text{Total Assets} - \text{Total Liabilities}}{\text{Shares Outstanding}}

. Subtracting liabilities of

\$5,000,000

from gross assets of

\$50,000,000

yields total net assets of

\$45,000,000

. Dividing this by

3,000,000

shares outstanding results in an NAV per share of

\$15.00

.

Step-by-Step Solution

1

Calculate Total Net Assets of the fund

$45,000,000

Total Net Assets equal Total Assets minus Total Liabilities (

\$50,000,000 - \$5,000,000

).

2

Calculate NAV per share

$15.00

NAV per share is computed by dividing Total Net Assets by the total number of shares outstanding (

\$45,000,000 / 3,000,000

).

Key Concept

Net Asset Value (NAV) Per Share Calculation

Estimated Time:45s

Question 42Question →

An open-end mutual fund holds total portfolio assets of $\$185,000,000$ and total liabilities of $\$10,000,000$ at the start of the valuation period. Prior to the 4:00 PM EST market close, portfolio asset value increases by $\$4,000,000$ due to market appreciation, and the fund accrues an additional $\$1,000,000$ in management fee liabilities. If the fund has $8,000,000$ shares outstanding, what is the Net Asset Value (NAV) per share at the market close?

Show answer & explanation

Answer: 22.25

Answer

The Net Asset Value (NAV) per share at market close is

\$22.25

.

Net Asset Value (NAV) per share is calculated using the formula:

\text{NAV per share} = \frac{\text{Total Assets} - \text{Total Liabilities}}{\text{Shares Outstanding}}

. First, adjust total assets to

\$189,000,000

(

\$185,000,000 + \$4,000,000

) and total liabilities to

\$11,000,000

(

\$10,000,000 + \$1,000,000

). The net assets of the fund equal

\$178,000,000

(

\$189,000,000 - \$11,000,000

). Dividing net assets by

8,000,000

shares outstanding results in an NAV per share of

\$22.25

.

Step-by-Step Solution

1

Calculate total assets at market close

Ending Total Assets =

\$189,000,000

Add portfolio appreciation of

\$4,000,000

to the initial total assets of

\$185,000,000

.

2

Calculate total liabilities at market close

Ending Total Liabilities =

\$11,000,000

Add newly accrued liabilities of

\$1,000,000

to initial liabilities of

\$10,000,000

.

3

Calculate total net asset value of the fund

Net Fund Assets =

\$178,000,000

Subtract total liabilities from total assets (

\$189,000,000 - \$11,000,000

).

4

Calculate NAV per share

NAV per share =

\$22.25

Divide net fund assets (

\$178,000,000

) by total shares outstanding (

8,000,000

).

Key Concept

Net Asset Value (NAV) Calculation for Mutual Funds

Question 43Question →

An institutional investor purchases 25 corporate bonds at a secondary market price of $1,080 per bond. The bonds carry a$ 1,000 par value and a stated annual coupon rate of 7.2%. What is the total dollar amount of interest income the investor receives every six months from this position?

Show answer & explanation

Answer: 900

Answer

The total semi-annual interest income received by the investor from the 25 corporate bonds is $900.

Coupon payments are calculated using the bond's par value (

1,000) rather than its secondary market price (

1,080). A 7.2% coupon rate on a

1,000 par value produces

72 in annual interest per bond. Because corporate bonds pay interest semi-annually, each bond pays

36 every six months (

72 / 2). Multiplying

36 by 25 bonds results in a total semi-annual payment of

900.

Step-by-Step Solution

1

Calculate the annual interest payment per bond

$72 per bond

Bond coupon payments are contractual percentages calculated strictly against the par value ($1,000), regardless of the secondary market purchase price.

2

Determine the semi-annual interest payment per bond

$36 per bond

Standard corporate bonds pay interest semi-annually (twice per year), requiring the annual coupon amount to be divided by 2.

3

Calculate total semi-annual interest income for the entire position

$900 total

Multiplying the semi-annual payment per bond ($36) by the total number of bonds owned (25) yields the total semi-annual cash flow.

Key Concept

Calculation of semi-annual bond coupon payments based on par value

Question 44Question →

An investor subject to a 35% federal marginal income tax rate and a 5% state marginal income tax rate purchases a newly issued in-state municipal bond at par with a yield of 3.90%. What fully taxable corporate bond yield would provide the investor with the exact same after-tax yield?

Show answer & explanation

Answer: 6.5

Answer

6.50%

Because in-state municipal bond interest is exempt from both federal and state income taxes, the investor avoids a combined marginal tax rate of 40% (35% federal + 5% state). Dividing the municipal yield of 3.90% by (1 - 0.40) gives 6.50%, representing the corporate bond yield required to deliver the same net after-tax return.

Step-by-Step Solution

1

Calculate the combined tax exemption rate

40% (0.40)

In-state municipal bonds are exempt from both federal (35%) and state (5%) income taxes, making the combined tax rate 40%.

2

Apply the Tax-Equivalent Yield formula

Tax-Equivalent Yield = 3.90% / (1 - 0.40)

To determine the fully taxable yield needed to match a tax-exempt municipal yield, divide the municipal yield by one minus the investor's total marginal tax rate.

3

Compute the final equivalent corporate yield

6.50%

Dividing 3.90% by 0.60 results in 6.50%.

Key Concept

Tax-Equivalent Yield for Municipal Bonds

Question 45Question →

An investor purchases a corporate bond with a par value of $1,000 and a stated annual coupon rate of 7.0% for a secondary market price of$ 875. What is the current yield of this bond expressed as a percentage?

Show answer & explanation

Answer: 8

Answer

The current yield of the bond is 8.0%.

Current yield measures the annual income returned on a bond relative to its current market price. First, calculate the annual coupon payment:

1,000 par value × 7.0% coupon rate =

70 annual interest. Next, divide the annual interest by the secondary market purchase price:

70 /

875 = 0.08, or 8.0%.

Step-by-Step Solution

1

Calculate annual dollar interest payment

$70.00

Annual Interest = Par Value × Coupon Rate =

1,000 × 7.0% =

70.00.

2

Calculate current yield percentage

8.0%

Current Yield = Annual Interest / Secondary Market Price =

70.00 /

875.00 = 0.08 (8.0%).

Key Concept

Current Yield Calculation for Debt Securities

Estimated Time:45s

Question 46Question →

An open-end growth fund begins the trading day with total portfolio assets of $\$120,000,000$ , total liabilities of $\$8,000,000$ , and $5,000,000$ shares outstanding. Before the close of trading, the fund experiences the following financial updates:
- Portfolio securities appreciate in market value by $\$4,000,000$ .
- The fund receives $\$1,500,000$ in cash dividend income from its portfolio investments.
- Investment advisory fees and operating expenses of $\$500,000$ are accrued as fund liabilities.

A retail investor places an order to purchase Class A shares of the fund prior to the 4:00 PM EST market close. The fund assesses a front-end sales load of $5.00\%$ . Based on forward pricing principles, what is the Public Offering Price (POP) per share that the investor will pay? (Express your answer in dollars rounded to two decimal places.)

Show answer & explanation

Answer: 24.63

Answer

The Public Offering Price (POP) per share is $24.63.

To determine the Public Offering Price (POP) per share, first determine the fund's end-of-day Net Asset Value (NAV). Total assets equal

\$120,000,000 + \$4,000,000 + \$1,500,000 = \$125,500,000

. Total liabilities equal

\$8,000,000 + \$500,000 = \$8,500,000

. Net assets equal

\$125,500,000 - \$8,500,000 = \$117,000,000

. Dividing net assets by

5,000,000

shares outstanding yields an NAV per share of

\$23.40

. The Public Offering Price is calculated using the formula POP = NAV / (1 - Sales Charge %). Substituting

\$23.40 / (1 - 0.05) = \$23.40 / 0.95 = \$24.63157...

, which rounds to

\$24.63

.

Step-by-Step Solution

1

Calculate total end-of-day portfolio assets

$125,500,000

Add the initial assets (

120,000,000), portfolio market appreciation (

4,000,000), and cash dividends received ($1,500,000).

2

Calculate total end-of-day portfolio liabilities

$8,500,000

Add initial liabilities (

8,000,000) and newly accrued operating expenses/advisory fees (

500,000).

3

Compute Net Asset Value (NAV) per share

$23.40 per share

Subtract total liabilities from total assets ($117,000,000) and divide by the 5,000,000 shares outstanding.

4

Compute Public Offering Price (POP) per share

$24.63 per share

Apply the FINRA formula POP = NAV / (1 - Sales Charge %) because sales charges are expressed as a percentage of the offering price, not the NAV.

Key Concept

Forward pricing NAV calculation and Public Offering Price (POP) formula for Class A open-end fund shares.

Question 47Question →

An investor in a $28\%$ federal marginal income tax bracket purchases a corporate bond at par ( $1,000) with a stated coupon rate of$ 7.50\%$. What is the investor's after-tax yield on this bond?

Show answer & explanation

Answer: 5.4

Answer

The investor's after-tax yield on the corporate bond is 5.40%.

Interest income from corporate bonds is fully taxable at both federal and state levels. To calculate the net return for an investor, the nominal yield must be adjusted by the tax rate:

\text{After-Tax Yield} = \text{Corporate Yield} \times (1 - \text{Tax Rate})

. For a

7.50\%

coupon bond held by an investor in a

28\%

tax bracket, the calculation is

7.50\% \times (1 - 0.28) = 5.40\%

.

Step-by-Step Solution

1

Identify the nominal corporate yield and tax rate.

Pre-tax corporate yield =

7.50\%

, Federal tax rate =

28\%

.

Corporate bonds pay interest that is fully subject to federal marginal income tax.

2

Set up the after-tax yield equation.

\text{After-Tax Yield} = \text{Pre-Tax Yield} \times (1 - \text{Tax Rate})

The investor retains the portion of interest income remaining after income tax is deducted.

3

Perform the multiplication.

7.50\% \times (1 - 0.28) = 7.50\% \times 0.72 = 5.40\%

.

Multiplying the pre-tax return by the net retained percentage (72%) yields the net return.

Key Concept

Corporate Bond After-Tax Yield

Question 48Question →

An investor purchases 8 corporate bonds in the secondary market at a discounted price of 95 ( $950 per bond). Each bond has a par value of$ 1,000 and carries a stated coupon rate of 6.25% payable semi-annually. What is the total dollar amount of interest the investor will receive across all 8 bonds in a single semi-annual payment?

Show answer & explanation

Answer: 250

Answer

The total dollar amount of interest received in a single semi-annual payment is $250.

Bond coupon payments are always calculated by multiplying the annual coupon rate by the par value (

1,000 per bond), irrespective of secondary market prices. For 8 bonds, total par value equals

8,000. At a 6.25% annual coupon rate, the total annual interest payment is

8,000 × 0.0625 =

500. Because corporate bonds pay interest semi-annually, each individual payment equals half of the annual total (

500 / 2 =

250).

Step-by-Step Solution

1

Determine total par value of the holding

$8,000 total par value

Bond coupon payments are determined using par value ($1,000 per bond) rather than secondary market purchase price.

2

Calculate total annual interest income

$500 total annual interest

Multiply total par value (

8,000) by the stated annual coupon rate of 6.25% (

8,000 × 0.0625).

3

Calculate single semi-annual payment amount

$250 semi-annual payment

Corporate bonds pay interest semi-annually (twice per year), so the total annual interest is divided by 2.

Key Concept

Bond coupon payments are calculated strictly on face (par) value rather than secondary market price, and standard corporate bond interest is paid semi-annually.

Question 49Question →

An investor purchases a 5.00% corporate convertible debenture with a par value of $1,000. The debenture has a specified conversion price of$ 40 per share. The underlying common stock of the issuing corporation is currently trading in the secondary market at $46 per share. If the convertible bond is trading in the market at a 5% premium to its parity value, what is the current market price of the bond in dollars?

Show answer & explanation

Answer: 1207.5

Answer

The current market price of the bond is $1,207.50.

To find the bond's market price, first compute the conversion ratio:

1,000 par value divided by the

40 conversion price equals 25 shares. Next, find the bond's parity value by multiplying the 25 shares by the common stock's market price of

46, resulting in

1,150. Finally, apply the 5% premium to parity (

1,150 × 1.05), which yields the final bond market price of

1,207.50.

Step-by-Step Solution

1

Determine the conversion ratio

Conversion Ratio =

1,000 Par Value /

40 Conversion Price = 25 shares per bond

The conversion ratio establishes how many shares of common stock the bondholder receives upon converting one bond.

2

Calculate the parity value of the bond

Parity Value = 25 shares ×

46 Stock Price =

1,150

Parity occurs when the market value of the convertible security equals the total market value of the common stock into which it can be converted.

3

Apply the market premium over parity

Market Price =

1,150 × (1 + 0.05) =

1,207.50

Convertible bonds often trade at a premium to parity because investors pay extra for downside protection provided by the bond's senior claim and coupon payments.

Key Concept

Convertible Bond Parity Value and Market Premium Calculation

Question 50Question →

An investor purchases a corporate bond with a par value of $\$1,000$ currently trading at a market price of $\$900$ . If the bond has a stated annual coupon rate of $4.5\%$ , what is the bond's current yield (expressed as a percentage)?

Show answer & explanation

Answer: 5

Answer

The current yield of the bond is

5.0\%

.

The correct answer is

5.0\%

. Current yield measures the annual return an investor receives based on the current market price of a bond. To calculate it, first determine annual coupon income:

4.5\%

of the

\$1,000

par value equals

\$45

. Next, divide this annual interest by the current market price of

\$900

:

\frac{\$45}{\$900} = 0.05

, which equals

5.0\%

.

Step-by-Step Solution

1

Calculate the annual interest payment in dollars.

\$1,000 \times 0.045 = \$45

Bond coupon rates are stated as an annual percentage of the

\$1,000

par value.

2

Divide the annual dollar interest by the bond's current market price.

\frac{\$45}{\$900} = 0.05 \text{ or } 5.0\%

Current yield measures the annual income generated relative to the market price paid for the security.

Key Concept

Current Yield Calculation for Corporate Bonds

Question 51Question →

A balanced mutual fund holds total portfolio assets of $\$95,000,000$ and has total liabilities of $\$15,000,000$ . If the fund has $5,000,000$ shares outstanding, what is the fund's Net Asset Value (NAV) per share in dollars?

Show answer & explanation

Answer: 16

Answer

The Net Asset Value (NAV) per share is

\$16.00

.

The Net Asset Value (NAV) per share is determined by the formula:

\text{NAV} = \frac{\text{Total Assets} - \text{Total Liabilities}}{\text{Shares Outstanding}}

. Subtracting

\$15,000,000

in liabilities from

\$95,000,000

in total assets yields net assets of

\$80,000,000

. Dividing

\$80,000,000

by

5,000,000

shares outstanding results in an NAV of

\$16.00

per share.

Step-by-Step Solution

1

Subtract total liabilities from total assets to determine net assets.

Net Assets =

\$95,000,000 - \$15,000,000 = \$80,000,000

Net asset value requires deducting total obligations from gross portfolio assets.

2

Divide total net assets by total shares outstanding.

NAV per share =

\$80,000,000 / 5,000,000 = \$16.00

Dividing total net equity by outstanding shares yields the per-share value of the fund.

Key Concept

Net Asset Value (NAV) Per Share Calculation

Question 52Question →

A customer purchases $\$12,000$ of marginable common stock in a newly opened margin account. Under Federal Reserve Regulation T, how much cash must the customer deposit to satisfy the initial margin requirement?

Show answer & explanation

Answer: 6000

Answer

The customer must deposit

\$6,000

in cash to meet the Regulation T initial margin requirement.

Under Federal Reserve Board Regulation T, an investor buying marginable equity securities must deposit at least

50\%

of the purchase price. For a

\$12,000

purchase, the required cash deposit is

50\% \times \$12,000 = \$6,000

. This amount easily satisfies FINRA's minimum initial equity requirement of

\$2,000

.

Step-by-Step Solution

1

Identify the Regulation T initial deposit percentage for marginable securities

Regulation T mandates a

50\%

deposit of the trade's total purchase value.

Federal Reserve Board Regulation T establishes credit limits for purchasing marginable securities.

2

Calculate the required dollar deposit

\$12,000 \times 50\% = \$6,000

The investor is required to fund half of the total purchase amount.

3

Verify against the FINRA initial minimum equity rule

\$6,000

exceeds the FINRA minimum requirement of

\$2,000

.

FINRA rules mandate a minimum initial equity of

\$2,000

or

100\%

of the purchase price (whichever is less), which is fully satisfied by the

\$6,000

deposit.

Key Concept

Regulation T Initial Margin Requirement

Question 53Question →

An investor holds $400$ shares of Meridian Health stock currently trading at $\$100$ per share. The board of directors declares a $5$ -for- $4$ forward stock split. What is the new adjusted price per share, in dollars, immediately following the split?

Show answer & explanation

Answer: 80

Answer

The adjusted price per share following the 5-for-4 forward stock split is $80.

In a forward stock split, the investor receives more shares while the price per share decreases proportionally so that the overall dollar value of the position remains identical. For a 5-for-4 forward split, the new share price is calculated by multiplying the pre-split price of

100 by the inverse fraction 4/5, resulting in

80 per share.

Step-by-Step Solution

1

Identify the pre-split share price and stock split ratio.

Pre-split price is

\$100

; split ratio is

5

-for-

4

.

A forward stock split increases the total number of outstanding shares while reducing the price per share proportionally to preserve total market value.

2

Calculate the price adjustment factor.

The adjustment factor for price is

\frac{4}{5} = 0.80

.

The price per share adjusts inversely to the share quantity expansion ratio.

3

Multiply the original price per share by the adjustment factor.

\$100 \times 0.80 = \$80

.

Multiplying the pre-split price by

0.80

gives the exact post-split market price per share.

Key Concept

Forward Stock Split Price Adjustment

Question 54Question →

An investor opens a margin account and executes a first-time transaction purchasing $120$ shares of ABC common stock at $\$45$ per share. If the investor elects to satisfy the initial Regulation T margin requirement by depositing fully paid marginable securities instead of cash, what is the minimum total market value (in dollars) of securities that must be deposited?

Show answer & explanation

Answer: 5400

Answer

$5,400 in fully paid marginable securities

The total purchase amount is

120 \times \$45 = \$5,400

. Under Federal Reserve Regulation T, the initial margin requirement is 50%, which equals

0.50 \times \$5,400 = \$2,700

in cash. If an investor chooses to deposit fully paid marginable securities instead of cash, those securities are valued at their loan value of 50%. Consequently, to meet a

2,700 cash margin call, the investor must deposit securities with a market value equal to twice the cash requirement (

2 \times \

2,700 = \$5,400

).

Step-by-Step Solution

1

Calculate the total purchase cost of the transaction.

120 \text{ shares} \times \$45\text{/share} = \$5,400

Determining the total transaction size establishes the baseline for Regulation T calculations.

2

Calculate the initial Regulation T cash margin requirement.

50\% \times \$5,400 = \$2,700

Federal Reserve Board Regulation T requires an initial equity deposit of 50% of the purchase value for long stock positions.

3

Determine the required value of marginable securities needed to satisfy the cash call.

\frac{\$2,700}{0.50} = \$5,400

Marginable securities deposited to satisfy a margin call only provide 50% of their market value in loan value/equity. Therefore, an investor must deposit securities equal to twice (200%) the required cash amount.

Key Concept

Satisfying Regulation T Initial Margin Requirements with Securities

Question 55Question →

An investor opening a new margin account executes an initial long purchase of $75$ shares of stock at $\$36$ per share. Under Federal Reserve Regulation T ( $50\%$ ) and FINRA initial margin rules, what is the total minimum dollar cash deposit required from the investor?

Show answer & explanation

Answer: 2000

Answer

The total minimum dollar cash deposit required is $2,000.

To calculate the required deposit, determine the total trade value: 75 shares ×

36 =

2,700. Regulation T requires 50% of the purchase value (

1,350). However, FINRA Rule 4210 enforces a minimum initial deposit requirement of

2,000 for accounts making long purchases between

2,000 and

4,000. Because the broker-dealer must enforce the higher of the Federal Reserve and SRO requirements, the required deposit is $2,000.

Step-by-Step Solution

1

Calculate the total market value of the purchase.

2,700 (75 shares ×

36 per share)

Initial margin rules are evaluated against the total purchase value.

2

Calculate the Federal Reserve Regulation T requirement.

1,350 (50% of

2,700)

Regulation T mandates a standard 50% margin requirement on eligible securities.

3

Apply FINRA Rule 4210 initial minimum equity requirements.

$2,000 minimum deposit requirement

FINRA requires an initial minimum equity deposit of

2,000, or 100% of the purchase price if the total transaction value is less than

2,000.

4

Determine the required deposit by selecting the stricter requirement.

$2,000

The investor must deposit whichever regulatory threshold is greater between Regulation T (

1,350) and FINRA minimum initial equity (

2,000).

Key Concept

Regulation T and FINRA Rule 4210 Initial Margin Deposit Requirements

Question 56Question →

An investor holds $400$ shares of ABC Corporation common stock currently trading at $\$60$ per share. The company declares and executes a $5$ -for- $4$ forward stock split. What is the investor's expected post-split price per share, in dollars?

Show answer & explanation

Answer: 48

Answer

The expected post-split price per share is $48.

In a

5

-for-

4

forward stock split, the investor receives

5

shares for every

4

shares previously held, increasing the share position from

400

to

500

shares (

400 \times 1.25 = 500

). Because the total value of the investor's position remains unchanged at

\$24,000

(

400 \text{ shares} \times \$60

), the post-split price per share must decrease proportionally to

\$48

(

500 \text{ shares} \times \$48 = \$24,000

).

Step-by-Step Solution

1

Determine the stock split ratio

The split factor is

\frac{5}{4} = 1.25

.

A 5-for-4 forward stock split increases the total number of shares by a factor of 1.25.

2

Calculate the post-split price per share

\frac{\$60}{1.25} = \$48

A stock split does not alter the total dollar value of the holding, so the price per share decreases proportionally as the share count increases.

Key Concept

Forward Stock Split Price Adjustment

Question 57Question →

An investor holds 450 shares of XYZ Corporation common stock, currently valued at $80.00 per share. XYZ Corporation announces a 3-for-2 stock split, after which it pays a quarterly cash dividend of$ 0.50 per share on all post-split shares. What is the total dollar amount of the dividend payment the investor will receive?

Show answer & explanation

Answer: 337.5

Answer

The total dividend payment received by the investor is $337.50.

In a 3-for-2 stock split, the investor receives 3 shares for every 2 shares previously held, expanding the position from 450 shares to 675 shares (

450 \times \frac{3}{2} = 675

). Cash dividends declared after a stock split apply to all post-split shares held. Multiplying 675 post-split shares by the

0.50 per share dividend yields a total dividend payment of

337.50.

Step-by-Step Solution

1

Determine the post-split share quantity

450 shares * (3 / 2) = 675 shares

A 3-for-2 forward stock split increases total shares by multiplying the initial count by 3/2.

2

Calculate total dividend distribution

675 shares *

0.50 =

337.50

The cash dividend rate applies to the adjusted post-split number of shares owned on the record date.

Key Concept

Adjusting position share count for forward stock splits and applying post-split corporate action cash distributions.

Estimated Time:1m 30s

Question 58Question →

A customer opens a new margin account with a FINRA member broker-dealer and executes a first-time transaction purchasing $80$ shares of ABC stock at $\$30$ per share. Assuming there are no existing positions or cash in the account, what is the minimum required initial cash deposit under Federal Reserve Regulation T and FINRA rules?

Show answer & explanation

Answer: 2000

Answer

The minimum required initial cash deposit is $2,000.

For an initial long transaction in a new margin account, Regulation T specifies a 50% margin deposit (

1,200), while FINRA Rule 4210 enforces a minimum initial equity deposit of

2,000. Because broker-dealers must enforce the stricter rule, the investor must deposit $2,000 in cash.

Step-by-Step Solution

1

Calculate total trade value.

80 shares ×

30 =

2,400

Initial margin requirements are computed from total transaction market value.

2

Calculate the Federal Reserve Regulation T requirement.

50% of

2,400 =

1,200

Regulation T mandates a 50% initial margin for equity purchases.

3

Determine FINRA initial minimum equity requirement.

$2,000

FINRA Rule 4210 requires a minimum initial equity deposit of

2,000 (or 100% of purchase price if total trade value is less than

2,000).

4

Compare Regulation T and FINRA minimum requirements.

Greater of

1,200 and

2,000 is $2,000

The investor must deposit whichever amount is higher between Regulation T and FINRA minimum rules.

Key Concept

Initial margin requirements under Regulation T and FINRA minimum equity rules for margin accounts

Question 59Question →

An investor holds $1,600$ shares of Horizon Technologies common stock in a cash account. The corporation executes a $5$ -for- $4$ forward stock split. Shortly after the split becomes effective, the company distributes a $5\%$ stock dividend on all post-split shares. Following these corporate actions, the board of directors declares a regular quarterly cash dividend of $\$0.25$ per share. What is the total dollar amount of the cash dividend that the investor will receive?

Show answer & explanation

Answer: 525

Answer

The total cash dividend amount received by the investor is $525.00.

The correct answer is

525.00. The investor begins with 1,600 shares. The 5-for-4 stock split increases the position to 2,000 shares (1,600 × 5 / 4). Next, the 5% stock dividend adds an additional 5% to the position, resulting in 2,100 shares (2,000 × 1.05). Finally, multiplying the total adjusted position of 2,100 shares by the

0.25 per share cash dividend produces a total dividend payment of $525.00.

Step-by-Step Solution

1

Calculate the share position immediately following the 5-for-4 forward stock split.

1,600 shares × (5 / 4) = 2,000 shares.

A 5-for-4 stock split increases the number of shares held by a factor of 1.25 (5 divided by 4).

2

Calculate the updated share position after applying the 5% stock dividend to the post-split shares.

2,000 shares × 1.05 = 2,100 shares.

A stock dividend increases total shares held proportionally without changing the investor's total percentage ownership before cash dividend distribution.

3

Determine the total cash dividend payout based on the final share balance on the record date.

2,100 shares ×

0.25 =

525.00.

Cash dividends are paid on the total number of shares owned by the stockholder of record as of the dividend record date.

Key Concept

Multi-step corporate action adjustments including forward splits, stock dividends, and dividend payout calculations.

Question 60Question →

A customer opens a new margin account and purchases $100$ shares of ABC common stock at $\$80$ per share. Under Regulation T, how much cash must the customer deposit to meet the initial margin requirement?

Show answer & explanation

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

100

shares at

\$80

per share, the total purchase value is

\$8,000

. Calculating 50% of

\$8,000

yields a required cash deposit of

\$4,000

. Because

\$4,000

exceeds the FINRA initial minimum deposit threshold of

\$2,000

, the customer must deposit

\$4,000

.

Step-by-Step Solution

1

Calculate the total market value of the purchase.

100 \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 = \$4,000

Regulation T mandates a 50% initial deposit for marginable stock purchases.

3

Verify against the FINRA initial minimum equity requirement.

\

4,000 \ge \$2,000

The customer must deposit the greater of Regulation T (50%) or the FINRA minimum ($2,000).

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