All practice questions

Question 61Question →

A client establishes a margin relationship with a broker-dealer and purchases $300$ shares of a listed equity security at $\$12$ per share as the first transaction in the account. Under Federal Reserve Regulation T and FINRA Rule 4210, what is the minimum cash deposit required from the customer?

Show answer & explanation

Answer: 2000

Answer

The minimum cash deposit required is $2000.

The total trade value is

3,600 (300 shares ×

12). While Regulation T requires 50% (

1,800), FINRA Rule 4210 imposes a minimum initial equity requirement of

2,000 for margin accounts on transactions between

2,000 and

4,000. Therefore, the greater amount of $2,000 must be deposited.

Step-by-Step Solution

1

Determine the total market value of the purchase

$3,600

Multiply 300 shares by $12 per share to find the total transaction value.

2

Calculate the Regulation T requirement

$1,800

Regulation T mandates a 50% initial margin requirement (

3,600 × 50% =

1,800).

3

Apply the FINRA minimum initial equity rule

$2,000

FINRA Rule 4210 requires a minimum initial equity of

2,000 for new margin accounts unless the total purchase amount is less than

2,000 (in which case 100% of the purchase value is required). Since

1,800 is below

2,000, the $2,000 rule governs.

Key Concept

FINRA Minimum Initial Margin Equity Requirement ($2,000 Rule vs Reg T 50%)

Question 62Question →

An investor establishing a new margin account executes a short sale of $300$ shares of XYZ common stock at $\$12$ per share as the account's initial transaction. Assuming no prior cash or security balance in the account, what is the minimum dollar amount of cash equity the investor must deposit to satisfy all Federal Reserve Regulation T and FINRA initial margin requirements?

Show answer & explanation

Answer: 2000

Answer

The investor must deposit $2,000 in cash equity to satisfy the FINRA minimum initial margin requirement.

The total market value of the short sale is

300 \times \$12 = \$3,600

. Regulation T requires 50% of the trade value (

0.50 \times \$3,600 = \$1,800

). However, FINRA Rule 4210 requires a minimum initial equity deposit of

\$2,000

to initiate a short sale in a margin account. Because the investor must satisfy the stricter of the two rules, the required deposit is

\$2,000

.

Step-by-Step Solution

1

Calculate the gross proceeds / market value of the short sale position

300 \text{ shares} \times \$12 = \$3,600

The transaction value serves as the base for calculating Regulation T requirements.

2

Calculate the Regulation T initial deposit requirement (50%)

50\% \times \$3,600 = \$1,800

Federal Reserve Regulation T requires 50% initial margin on equity short sales.

3

Evaluate against FINRA Rule 4210 minimum initial equity requirement

\text{FINRA Minimum Equity} = \$2,000

FINRA rules mandate a minimum initial equity deposit of $2,000 for opening a short margin position.

4

Determine the governing requirement

\max(\$1,800, \$2,000) = \$2,000

The investor must deposit the higher of the Regulation T requirement or FINRA's minimum initial equity requirement.

Key Concept

Interaction between Regulation T 50% initial requirement and the FINRA $2,000 minimum initial equity rule for short sales

Estimated Time:2m 0s

Question 63Question →

An investor holds $400$ shares of common stock in a margin account, with the stock currently trading at a market price of $\$60$ per share. The issuing corporation declares and executes a $3$ -for- $2$ forward stock split. What is the new market price per share of the stock immediately following the stock split?

Show answer & explanation

Answer: 40

Answer

The post-split price per share is

\$40

.

In a forward stock split, the total economic value of the investor's equity holding remains identical before and after the corporate action. The original position value was

400 \text{ shares} \times \$60 = \$24,000

. Following a

3

-for-

2

split, the investor receives

3

shares for every

2

shares held, yielding

400 \times \frac{3}{2} = 600

shares. To keep the total market value at

\$24,000

, the new share price must be

\frac{\$24,000}{600 \text{ shares}} = \$40

per share.

Step-by-Step Solution

1

Determine the stock split factor for price adjustment.

In a

3

-for-

2

forward stock split, the number of shares increases by a factor of

\frac{3}{2}

(

1.5

), which means the price per share must decrease by multiplying by

\frac{2}{3}

.

Stock splits adjust share count and share price proportionally so that total position value remains unchanged.

2

Calculate the new price per share.

New price =

\$60 \times \frac{2}{3} = \$40

.

The total value of the investor's position before the split (

400 \text{ shares} \times \$60 = \$24,000

) must equal the total value after the split (

600 \text{ shares} \times \$40 = \$24,000

).

Key Concept

Forward Stock Split Price Adjustment

Estimated Time:45s

Question 64Question →

An investor holds $1,200$ shares of common stock currently trading at a market price of $\$15.00$ per share. The board of directors announces a $1$ -for- $5$ reverse stock split. What is the new adjusted market price per share, in dollars, immediately following the reverse stock split?

Show answer & explanation

Answer: 75

Answer

The new adjusted market price per share following the reverse stock split is $75.00.

Following a 1-for-5 reverse stock split, the investor receives 1 new share for every 5 shares previously held. The number of shares decreases from 1,200 to 240 (

1,200 \div 5 = 240

), while the price per share increases proportionally by a factor of 5 (

\$15.00 \times 5 = \$75.00

). Total position value remains constant at

\$18,000

.

Step-by-Step Solution

1

Determine the stock split factor

In a 1-for-5 reverse stock split, the split factor is

\frac{1}{5} = 0.20

.

A reverse stock split reduces the overall number of outstanding shares while proportionally increasing the share price.

2

Calculate the post-split price per share

Divide the pre-split market price by the split factor:

\frac{\$15.00}{0.20} = \$15.00 \times 5 = \$75.00

.

The total market value of the investor's position remains unchanged before and after the corporate action (

1,200 \text{ shares} \times \$15.00 = \$18,000

, and

240 \text{ shares} \times \$75.00 = \$18,000

).

Key Concept

Calculating position adjustments and share price changes following a reverse stock split

Estimated Time:1m 0s

Question 65Question →

An investor opens a new margin account with a broker-dealer and executes an initial transaction to purchase $150$ shares of common stock at $\$20$ per share. Under Regulation T and FINRA rules, what is the minimum cash deposit in dollars required from the investor for this purchase?

Show answer & explanation

Answer: 2000

Answer

The minimum cash deposit required is $2,000.

To determine the required initial deposit, first find the total transaction value: 150 shares ×

20 =

3,000. Under Federal Reserve Regulation T, the initial margin requirement is 50% of the purchase price (

3,000 × 0.50 =

1,500). However, FINRA Rule 4210 dictates that the minimum initial equity required to open a margin account is

2,000 (or 100% of the purchase value if the total cost is less than

2,000). Because

2,000 is higher than the

1,500 Regulation T requirement, the investor must deposit $2,000.

Step-by-Step Solution

1

Calculate total purchase market value

150 shares *

20 =

3,000

Determining the total transaction amount is necessary to evaluate Regulation T and FINRA margin thresholds.

2

Calculate the Regulation T percentage requirement

50% of

3,000 =

1,500

Federal Reserve Board Regulation T requires an initial deposit of 50% of the total purchase price.

3

Apply the FINRA Rule 4210 minimum initial equity rule

Required cash deposit = $2,000

FINRA Rule 4210 establishes a minimum initial equity requirement of

2,000 for opening a margin account (or 100% of the purchase price if the total cost is under

2,000). Since

2,000 is greater than the

1,500 Regulation T calculation, the customer must deposit $2,000.

Key Concept

FINRA Minimum Initial Equity Requirement ($2,000 Rule)

Question 66Question →

An investor holding $450$ shares of Apex Global common stock purchased at $\$80$ per share receives notification of a $5$ -for- $3$ stock split. Following the execution of the stock split, the investor sells $250$ shares at the new adjusted market price of $\$48$ per share. What is the total market value, in dollars, of the investor's remaining share position?

Show answer & explanation

Answer: 24000

Answer

The total market value of the investor's remaining share position is $24,000.

In a 5-for-3 forward stock split, the investor receives 5 new shares for every 3 original shares held. The post-split share count is calculated as

450 \times \frac{5}{3} = 750

shares. When the investor sells 250 shares, the remaining position consists of

750 - 250 = 500

shares. Valued at the post-split price of

\$48

per share, the remaining market value is

500 \times \$48 = \$24,000

.

Step-by-Step Solution

1

Calculate post-split total share count

750 shares

A 5-for-3 stock split increases the share count by a factor of 5/3. Multiply the original 450 shares by 5/3 to find the new total share position.

2

Determine remaining share quantity

500 shares

Subtract the 250 shares sold by the investor from the post-split total of 750 shares.

3

Calculate final position market value

$24,000

Multiply the remaining 500 shares by the adjusted market price of $48 per share.

Key Concept

Corporate Action Adjustments (Stock Splits) and Post-Transaction Position Valuation

Estimated Time:1m 30s

Question 67Question →

An investor opening a new margin account executes an initial transaction to sell short $200$ shares of XYZ common stock at $\$14$ per share. What is the minimum initial margin deposit required from the investor, in dollars, to satisfy Federal Reserve Regulation T and FINRA rules?

Show answer & explanation

Answer: 2000

Answer

The minimum initial deposit required from the investor is $2,000.

Under Federal Reserve Regulation T, the initial margin requirement is 50% of the total transaction value (

200 \times \$14 = \$2,800

), which equals

\$1,400

. However, FINRA Rule 4210 mandates a minimum initial equity requirement of

\$2,000

to establish a new margin position. Because

\$2,000

is greater than the Regulation T requirement of

\$1,400

, the investor must deposit

\$2,000

.

Step-by-Step Solution

1

Calculate total proceeds from the short sale

200 shares *

14/share =

2,800

Margin requirements are evaluated based on total market value of the transaction.

2

Calculate the Federal Reserve Regulation T requirement

50% of

2,800 =

1,400

Regulation T mandates a 50% deposit on margin transactions.

3

Compare against FINRA initial minimum equity rules

FINRA requires a minimum initial equity deposit of $2,000 for new margin accounts

FINRA Rule 4210 establishes an absolute minimum initial equity of

2,000 unless the total value is under

2,000 for a long transaction.

4

Select the governing deposit amount

The investor must deposit $2,000

The investor must deposit the greater of the Regulation T requirement (

1,400) or the FINRA minimum requirement (

2,000).

Key Concept

Initial Margin Requirements and FINRA $2,000 Minimum Equity Rule

Question 68Question →

An investor opening a new margin account executes an initial transaction selling short $100$ shares of a marginable stock at $\$28$ per share. Under Federal Reserve Regulation T and FINRA rules, what is the minimum dollar amount of initial equity the investor must deposit?

Show answer & explanation

Answer: 2000

Answer

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

To determine the required initial deposit for a short sale in a new margin account, both Regulation T and FINRA rules must be evaluated. Regulation T requires 50% of the market value (

100 \times \$28 = \$2,800 \times 50\% = \$1,400

). However, FINRA Rule 4210 sets a mandatory minimum initial equity requirement of

2,000 for establishing short positions. Because the investor must satisfy the stricter of the two rules, the required initial deposit is

2,000.

Step-by-Step Solution

1

Calculate total short sale proceed value

2,800 (100 shares ×

28 per share)

Initial margin calculations are based on total transaction proceeds.

2

Calculate Federal Reserve Regulation T initial margin requirement

1,400 (50% of

2,800)

Regulation T mandates a standard 50% initial margin deposit on equity short sales.

3

Apply FINRA Rule 4210 minimum initial equity rule for short sales

$2,000 minimum requirement

FINRA rules require a strict minimum initial equity deposit of

2,000 to open a short position in a margin account, overriding Regulation T when the 50% calculation is less than

2,000.

Key Concept

FINRA Initial Margin Minimum Equity Rule for Short Sales

Question 69Question →

An investor holds 200 shares of ABC Corporation common stock priced at $50 per share. ABC Corporation executes a 1-for-4 reverse stock split. What is the new price per share, in dollars, immediately following the split?

Show answer & explanation

Answer: 200

Answer

The new price per share immediately following the 1-for-4 reverse stock split is $200.

In a 1-for-4 reverse stock split, every 4 existing shares are converted into 1 share. Because corporate actions do not change the total market value of an investor's holding, the price per share must increase proportionally by a factor of 4 (

50 \times 4 =

200).

Step-by-Step Solution

1

Determine the price adjustment multiplier for a 1-for-4 reverse stock split

Price multiplier = 4

A reverse stock split reduces the total share count and increases the price per share proportionally so that total position value remains unchanged.

2

Multiply the pre-split share price by the price multiplier

50 \times 4 =

200

Applying the 4-to-1 ratio to the $50 stock price yields the post-split price per share.

Key Concept

Post-split share price calculation for a reverse stock split

Question 70Question →

An investor holds $400$ shares of common stock currently trading at a market price of $\$45.00$ per share. The board of directors declares a $3$ -for- $2$ forward stock split. What will be the investor's new adjusted price per share in dollars after the split takes effect?

Show answer & explanation

Answer: 30

Answer

The adjusted price per share following the

3

-for-

2

forward stock split is

\$30.00

.

In a

3

-for-

2

forward stock split, shareholders receive

3

shares for every

2

shares held, increasing the overall share count by

50\%

. Because corporate actions do not alter the overall equity value of an investor's position, the price per share must decrease proportionally by multiplying the original price of

\$45.00

by the reciprocal ratio

\frac{2}{3}

, resulting in a new price of

\$30.00

per share.

Step-by-Step Solution

1

Determine the price adjustment factor for the stock split

The adjustment factor for per-share price is

\frac{2}{3}

.

A

3

-for-

2

forward split increases the number of shares by

1.5

times, requiring the per-share price to decrease proportionally by multiplying by the reciprocal

\frac{2}{3}

to maintain constant overall position value.

2

Multiply original share price by the adjustment factor

\$45.00 \times \frac{2}{3} = \$30.00

Multiplying the pre-split price of

\$45.00

by

\frac{2}{3}

yields the new post-split market price of

\$30.00

per share.

Key Concept

Calculating post-split share price for forward stock splits

Question 71Question →

An investor opens a new margin account and executes a short sale of $600$ shares of common stock at a price of $\$15$ per share. Assuming Federal Reserve Regulation T initial margin is set at $50\%$ and there are no prior cash or position balances in the account, what is the minimum dollar amount of cash equity the investor must deposit?

Show answer & explanation

Answer: 4500

Answer

The minimum cash deposit required is

4500

USD.

The correct deposit amount is

4500

USD. The total short transaction value is

600 \text{ shares} \times \$15 = \$9{}000

. Under Federal Reserve Regulation T, the initial margin requirement is

50\%

of the transaction value (

0.50 \times \$9{}000 = \$4{}500

). Because

\$4{}500

is greater than FINRA's minimum initial account requirement of

\$2{}000

, the investor must deposit the full

\$4{}500

.

Step-by-Step Solution

1

Calculate Total Short Market Value

600 \times \$15 = \$9{}000

Determining the total transaction size establishes the baseline for regulatory margin calculations.

2

Apply Regulation T Initial Margin Requirement

0.50 \times \$9{}000 = \$4{}500

Federal Reserve Regulation T requires an initial equity deposit of at least

50\%

of the transaction value.

3

Evaluate Against FINRA Minimum Initial Equity Threshold

\max(\$4{}500, \$2{}000) = \$4{}500

FINRA rules mandate a minimum initial account equity of

\$2{}000

. The investor must satisfy the larger of the Regulation T requirement or FINRA's minimum requirement.

Key Concept

Regulation T initial margin and FINRA minimum initial equity requirements for short equity positions

Question 72Question →

An investor holds $800$ shares of common stock with an initial cost basis of $\$90.00$ per share. The issuing corporation first distributes a $25\%$ stock dividend. Shortly following the stock dividend distribution, the company executes a $1$ -for- $5$ reverse stock split. What is the investor's adjusted cost basis per share (in dollars) after both corporate actions have been processed?

Show answer & explanation

Answer: 360

Answer

The investor's adjusted cost basis per share is $360.00.

Stock dividends and reverse stock splits change the total number of shares held without altering the overall aggregate cost basis of the position (

72,000). A 25% stock dividend increases 800 shares to 1,000 shares (

800 \times 1.25

). A subsequent 1-for-5 reverse stock split reduces 1,000 shares down to 200 shares (

1,000 \div 5

). Dividing the aggregate cost basis of

72,000 by 200 shares yields an adjusted per-share cost basis of $360.00.

Step-by-Step Solution

1

Calculate total initial cost basis of the position

800 \times \$90.00 = \$72,000

Corporate actions adjust the number of shares and per-share price/cost basis, but the total position cost basis remains unchanged.

2

Adjust total share quantity for the 25% stock dividend

800 \times (1 + 0.25) = 1,000

shares

A 25% stock dividend increases the share count by 25%.

3

Adjust total share quantity for the 1-for-5 reverse stock split

1,000 \times (1 / 5) = 200

shares

A 1-for-5 reverse split reduces the share count to one-fifth of the pre-split amount.

4

Compute final per-share cost basis

\$72,000 / 200 = \$360.00

per share

Divide the constant total cost basis ($72,000) by the new final share count (200).

Key Concept

Adjusting position share counts and per-share cost basis across multiple corporate actions while maintaining constant total position value.

Question 73Question →

An investor opens a new margin account and executes an initial transaction by purchasing $250$ shares of XYZ stock at $\$12$ per share. Under Federal Reserve Board Regulation T and FINRA rules, what is the minimum initial dollar amount the investor must deposit?

Show answer & explanation

Answer: 2000

Answer

The minimum initial required deposit is $2,000.

The total market value of the purchase is

250 \text{ shares} \times \$12 = \$3,000

. Under Federal Reserve Board Regulation T (50%), the calculated margin requirement is

\$1,500

. However, FINRA Rule 4210 requires a minimum initial equity deposit of

\$2,000

for any margin transaction where the total value exceeds

\$2,000

. Since the FINRA minimum requirement (

\$2,000

) is greater than the Regulation T requirement (

\$1,500

), the investor must deposit

\$2,000

.

Step-by-Step Solution

1

Calculate the total market value of the initial transaction

250 \text{ shares} \times \$12 = \$3,000

Margin requirements are calculated based on the total purchase price.

2

Calculate the Regulation T initial requirement

50\% \times \$3,000 = \$1,500

Regulation T mandates that investors deposit at least 50% of the purchase value.

3

Compare Regulation T result against the FINRA Rule 4210 initial minimum equity requirement

FINRA minimum deposit is $2,000

FINRA rules require a minimum equity deposit of

2,000 to open and execute margin transactions when total purchase value exceeds

2,000.

4

Select the greater of the Regulation T requirement and the FINRA rule minimum requirement

Deposit required = $2,000

The investor must satisfy the stricter of the two regulatory requirements.

Key Concept

FINRA Initial Minimum Equity Rule ($2,000 Deposit)

Question 74Question →

An investor holds $600$ shares of XYZ Corporation common stock in a cash account, purchased at an initial cost basis of $\$45.00$ per share. The issuing corporation declares a $5$ -for- $4$ stock split. Following the execution of this corporate action, what is the investor's adjusted cost basis per share (in dollars)?

Show answer & explanation

Answer: 36

Answer

The investor's adjusted cost basis per share after the

5

-for-

4

forward stock split is

\$36.00

.

The correct adjusted cost basis per share is

\$36.00

. In a

5

-for-

4

forward stock split, the share count increases by a ratio of

5/4

(from

600

to

750

shares) while the total cost basis remains unchanged at

\$27,000.00

. Dividing the total cost basis by the new share count (

\$27,000.00 / 750

) yields

\$36.00

per share, or multiplying the original price by the inverse of the split ratio (

\$45.00 \times 4 / 5 = \$36.00

).

Step-by-Step Solution

1

Calculate the total initial cost basis of the equity position.

The total cost basis is

600 \times \$45.00 = \$27,000.00

.

A stock split changes the number of outstanding shares and the per-share price, but the total overall monetary value of the investor's position remains unchanged.

2

Calculate the adjusted total number of shares owned after the split.

The post-split share count is

600 \times \frac{5}{4} = 750

shares.

In a

5

-for-

4

forward split, the investor receives

5

new shares for every

4

shares previously held, increasing the share quantity by

25\%

.

3

Determine the adjusted cost basis per share.

The new cost basis per share is

\frac{\$27,000.00}{750} = \$36.00

.

Dividing the total unchanged cost basis of

\$27,000.00

by the new total of

750

shares provides the lower per-share cost basis.

Key Concept

Corporate Action - Forward Stock Split Adjustments

Estimated Time:1m 0s

Question 75Question →

In a newly established margin account, a customer executes a short sale of $150$ shares of a marginable equity security priced at $\$22$ per share. According to Federal Reserve Board Regulation T and FINRA initial equity requirements, what minimum dollar amount must the customer deposit?

Show answer & explanation

Answer: 2000

Answer

$2,000

The total value of the short sale is

150 \times \$22 = \$3,300

. Under Federal Reserve Board Regulation T, the initial margin requirement is 50% of the trade value (

50\% \times \$3,300 = \$1,650

). However, FINRA rules require a minimum initial equity deposit of

\$2,000

to open a short position in a margin account. Because the calculated Regulation T deposit (

\$1,650

) is less than FINRA's minimum requirement, the customer must deposit the higher amount of

\$2,000

.

Step-by-Step Solution

1

Calculate total short sale value.

3,300 (150 shares ×

22/share)

Initial margin requirement calculations are based on total transaction value.

2

Calculate the Regulation T requirement.

1,650 (

3,300 × 50%)

Federal Reserve Board Regulation T mandates a standard 50% initial margin requirement.

3

Apply FINRA minimum initial equity rule.

$2,000 required deposit

FINRA rules require a minimum initial equity deposit of

2,000 (or 100% of purchase price if less than

2,000 for long positions, but

2,000 minimum for short sales). Because

1,650 is below

2,000, the investor must deposit

2,000.

Key Concept

Initial Margin Requirements under Regulation T and FINRA Rules

Question 76Question →

An investor holds $1,200$ shares of Apex Logistics common stock with an adjusted cost basis of $\$3.50$ per share. The corporation executes a 1-for-4 reverse stock split. What is the investor's new cost basis per share (in dollars) following the completion of this corporate action?

Show answer & explanation

Answer: 14

Answer

The new cost basis is $14.00 per share.

In a reverse stock split, the number of outstanding shares decreases and the price per share increases proportionally so that the total dollar value of the position remains constant. For a 1-for-4 reverse split, the share count is divided by 4 (

1,200 \rightarrow 300

) and the cost basis per share is multiplied by 4 (

\$3.50 \times 4 = \$14.00

).

Step-by-Step Solution

1

Calculate the total cost basis of the original position

1,200 \text{ shares} \times \$3.50/\text{share} = \$4,200.00

Corporate actions do not alter the overall economic dollar value or total cost basis of an investor's holding.

2

Calculate the post-split number of shares

1,200 \text{ shares} \times \frac{1}{4} = 300 \text{ shares}

A 1-for-4 reverse split consolidates every 4 existing shares into 1 new share.

3

Calculate the new cost basis per share

\frac{\$4,200.00}{300 \text{ shares}} = \$14.00 \text{ per share}

Dividing the unchanged total cost basis by the reduced share count yields the post-split cost basis per share.

Key Concept

Cost Basis Adjustment for Reverse Stock Splits

Question 77Question →

An investor opens a margin account and executes an initial transaction by purchasing $400$ shares of a marginable equity security at $\$7$ per share. Under Federal Reserve Regulation T and FINRA rules, what is the minimum dollar amount of cash the investor must deposit for this transaction?

Show answer & explanation

Answer: 2000

Answer

The minimum cash deposit required is $2,000.

For an initial margin transaction, Federal Reserve Regulation T requires a 50% deposit (

1,400 on a

2,800 trade). However, FINRA Rule 4210 requires a minimum initial equity deposit of

2,000. Because the calculated Regulation T margin of

1,400 is less than

2,000, the investor must deposit the FINRA required minimum of

2,000.

Step-by-Step Solution

1

Calculate total purchase value

$2,800

Multiply the number of shares purchased by the price per share (

400 \times \$7 = \$2,800

).

2

Calculate Regulation T 50% requirement

$1,400

Federal Reserve Regulation T mandates an initial deposit of 50% of total trade value (

0.50 \times \$2,800 = \$1,400

).

3

Apply FINRA minimum initial equity threshold

$2,000

FINRA Rule 4210 sets a minimum equity requirement of

\$2,000

(or 100% of purchase value if total purchase is less than

\$2,000

). Because

\$1,400

falls below

\$2,000

, the investor must deposit

\$2,000

.

Key Concept

FINRA Minimum Initial Equity Deposit Requirement ($2,000 Rule)

Question 78Question →

A customer opens a new margin account with a broker-dealer and executes an initial transaction by selling short $400$ shares of a marginable equity security at $\$25$ per share. Assuming the Regulation T margin requirement is $50\%$ , what is the minimum dollar amount of equity the customer must deposit into the account?

Show answer & explanation

Answer: 5000

Answer

The customer must deposit a minimum of $5,000 in equity to satisfy initial margin requirements.

For an initial short transaction in a new margin account, the investor must satisfy Federal Reserve Board Regulation T (

50\%

of the trade value) as well as FINRA's minimum initial equity requirement (

\$2,000

). The short sale of

400

shares at

\$25

per share generates a total trade value of

\$10,000

. Regulation T requires

50\%

of

\$10,000

, which equals

\$5,000

. Because the Regulation T requirement of

\$5,000

exceeds the FINRA minimum requirement of

\$2,000

, the investor must deposit

\$5,000

.

Step-by-Step Solution

1

Calculate the total market value of the short position

400 \text{ shares} \times \$25 = \$10,000

Initial margin calculations are based on the aggregate value of the transaction.

2

Determine the Regulation T initial margin requirement

50\% \times \$10,000 = \$5,000

Regulation T mandates an initial deposit of 50% of the trade value for short equity positions.

3

Apply the FINRA initial minimum deposit rule

\$5,000 \text{ equity required}

FINRA rules require a minimum initial equity deposit of $2,000 or the Regulation T requirement, whichever is greater.

Key Concept

Short sale initial margin requirements under Federal Reserve Board Regulation T and FINRA rules

Question 79Question →

A retail client maintains a single individual account at a broker-dealer that becomes insolvent and enters SIPC liquidation. At the time of filing, the account holds $280,000 in uninvested cash and$ 150,000 in equity securities. What is the total dollar amount protected and covered by SIPC for this customer's account?

Show answer & explanation

Answer: 400000

Answer

SIPC will cover $400,000 in total for this account.

SIPC provides coverage for customer accounts at insolvent broker-dealers up to

500,000 total per separate customer, which includes a maximum cap of

250,000 for cash claims. In this scenario, the investor's

280,000 cash balance receives the maximum cash protection of

250,000. Combined with the

150,000 in equity securities (which are fully covered), the total protected amount is

250,000 +

150,000 =

400,000. This amount does not exceed the overall $500,000 total customer limit.

Step-by-Step Solution

1

Apply the SIPC cash coverage sub-limit

Cash coverage is capped at

250,000 (leaving

30,000 unprotected cash as a general creditor claim).

SIPC limits cash protection to a maximum of $250,000 per separate customer.

2

Calculate eligible securities coverage

Securities coverage is $150,000.

Securities are covered for their full value up to the overall SIPC total limit.

3

Combine cash and securities coverage and verify against the overall per-customer limit

250,000 +

150,000 = $400,000 total coverage.

The overall SIPC coverage limit per separate customer is

500,000. Since

400,000 is less than

500,000, the full

400,000 claim is protected.

Key Concept

SIPC Coverage Limits (

500,000 total per separate customer, including up to

250,000 for cash claims)

Question 80Question →

A client holds an individual account at a SIPC-member broker-dealer undergoing bankruptcy liquidation. At the time of liquidation, the account contains $150,000 in corporate bonds,$ 280,000 in uninvested cash, and $50,000 in commodity futures contracts. In dollars, what is the total maximum SIPC coverage amount provided for this account?

Show answer & explanation

Answer: 400000

Answer

The maximum total SIPC coverage amount provided for this individual account is $400,000.

SIPC provides protection up to

500,000 per separate customer capacity, including up to

250,000 for cash claims. The

150,000 in corporate bonds is fully covered as eligible securities. The

280,000 cash balance is capped at the maximum

250,000 cash limit. Commodity futures contracts are not covered by SIPC. Summing

150,000 in securities and

250,000 in cash gives a total protected amount of

400,000.

Step-by-Step Solution

1

Filter out non-covered assets

Commodity futures ($50,000) are excluded from SIPC coverage entirely.

SIPC protects securities and cash held in customer brokerage accounts, but commodity futures and fixed annuities are not securities under SIPC rules.

2

Calculate covered cash amount

Covered cash is capped at $250,000.

SIPC limits cash coverage to $250,000 per separate customer capacity, regardless of total uninvested cash held.

3

Calculate total protected amount

150,000 securities +

250,000 cash = $400,000.

Combining

150,000 in protected corporate bonds with

250,000 in protected cash yields

400,000, which does not exceed the overall

500,000 SIPC limit.

Key Concept

SIPC limits protection to

500,000 per separate customer capacity, with a maximum cap of

250,000 for cash claims. Non-securities such as commodity futures are not covered.

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