All practice questions

Question 101Question →

An investor purchases $300$ shares of a marginable stock at $\$60$ per share in a newly opened margin account and satisfies the Regulation T initial margin requirement with cash. Assuming no subsequent trades or interest charges, what is the minimum market value in dollars to which the position can fall before triggering a FINRA maintenance margin call?

Show answer & explanation

Answer: 12000

Answer

The minimum long market value before a maintenance margin call is triggered is $12,000.

Under FINRA Rule 4210, the minimum maintenance requirement for a long margin account is 25% of the current market value. When buying

18,000 of stock, the investor deposits

9,000 (50%) and borrows

9,000 (debit balance). Setting account equity equal to the 25% requirement gives the formula: LMV - Debit = 0.25 x LMV, which simplifies to 0.75 x LMV = Debit. Dividing the

9,000 debit balance by 0.75 yields

12,000. If the market value drops below

12,000, equity falls below 25%, triggering a maintenance call.

Step-by-Step Solution

1

Determine the initial Long Market Value (LMV) and the resulting Debit Balance after the Regulation T cash deposit.

Initial LMV =

18,000 (

60 x 300 shares); Required cash deposit =

9,000 (50%); Debit Balance =

9,000.

Regulation T mandates that the customer fund 50% of the initial stock purchase, leaving the remaining 50% as a borrowed debit balance.

2

Set up the minimum maintenance margin equation under FINRA rules.

Equity = 0.25 x LMV, where Equity = LMV - Debit Balance.

FINRA Rule 4210 establishes that maintenance margin equity in a long account must equal at least 25% of the total current market value.

3

Substitute the debit balance into the equity formula and isolate LMV.

LMV -

9,000 = 0.25 x LMV => 0.75 x LMV =

9,000.

Because the debit balance remains fixed at $9,000, any decline in market value reduces equity dollar-for-dollar until equity drops to 25% of LMV.

4

Solve for LMV to find the critical price threshold.

LMV =

9,000 / 0.75 =

12,000.

Dividing the debit balance by 0.75 calculates the exact long market value at which equity equals 25% of the account value.

Key Concept

Minimum Maintenance Margin Level for Long Positions (Debit Balance / 0.75)

Question 102Question →

An investor owns $600$ shares of ABC Corporation common stock, which is currently trading at a market price of $\$45.00$ per share. The corporation announces and executes a $5$ -for- $4$ forward stock split. What is the adjusted price per share of ABC Corporation common stock immediately following the split?

Show answer & explanation

Answer: 36

Answer

The post-split price per share is

\$36.00

.

In a 5-for-4 forward split, the total share count increases by

125\%

, or a factor of

1.25

(

5 / 4 = 1.25

). To maintain the identical total market value of the position (

\$27,000

), the price per share must decrease proportionally by dividing the original price of

\$45.00

by

1.25

, resulting in

\$36.00

per share.

Step-by-Step Solution

1

Calculate the stock split factor

5 / 4 = 1.25

A 5-for-4 forward stock split means the investor receives 5 shares for every 4 shares previously held, increasing the share quantity by a ratio of 1.25.

2

Calculate the post-split share price

45.00 / 1.25 =

36.00

Corporate stock splits change share quantity and per-share market value proportionally so that total position value remains unchanged (

600 \times \$45.00 = 750 \times \$36.00 = \$27,000

).

Key Concept

Forward Stock Split Price Adjustment

Question 103Question →

An investor opening a new margin account executes an initial long purchase of 100 shares of XYZ stock at $15 per share. Under Regulation T and FINRA margin rules, what is the minimum dollar equity deposit required from the investor for this transaction?

Show answer & explanation

Answer: 1500

Answer

The minimum required equity deposit is $1,500.

Under Regulation T, the standard initial margin requirement is 50% (

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

2,000 or 100% of the purchase price, whichever is less. Since the total purchase price is

1,500, which is less than

2,000, the customer must deposit 100% of the purchase price, or $1,500.

Step-by-Step Solution

1

Determine total transaction value

1,500 (100 shares ×

15)

Margin requirements are based on the aggregate purchase price.

2

Compare Regulation T and FINRA minimum initial deposit rules

Deposit required is $1,500

Regulation T requires 50% (

750), but FINRA Rule 4210 mandates an initial minimum equity deposit of

2,000 or 100% of the purchase price, whichever is less. Since

1,500 is less than

2,000, the investor must deposit 100% of the purchase amount.

Key Concept

FINRA Initial Margin Minimum Deposit Rule for Small Purchases

Question 104Question →

An investor purchases 400 shares of XYZ Corporation common stock at $55.00 per share in a cash account. Subsequently, the corporation executes a 5-for-4 stock split, and later in the same year pays a 10% stock dividend. Assuming no other transactions or cash liquidations occur, what is the investor's adjusted cost basis per share (in USD) after both corporate actions are completed?

Show answer & explanation

Answer: 40

Answer

The investor's adjusted cost basis per share is $40.00.

The total cost basis of the holding remains unchanged at

22,000 (

400 \text{ shares} \times \

55.00

). The 5-for-4 split increases the share count from 400 to 500 shares (

400 \times 1.25

). The subsequent 10% stock dividend adds another 10% to the 500-share position, yielding 550 total shares (

500 \times 1.10

). Dividing the unchanged

22,000 total cost basis by 550 shares produces an adjusted cost basis of

40.00 per share.

Step-by-Step Solution

1

Calculate the total initial cost basis of the stock position.

Total cost basis is

400 \text{ shares} \times \$55.00 = \$22,000

.

Stock splits and stock dividends alter the number of outstanding shares and per-share price, but do not change the total economic cost basis of the position.

2

Adjust the share quantity for the 5-for-4 forward stock split.

Share count becomes

400 \times \left(\frac{5}{4}\right) = 500

shares.

A 5-for-4 split increases share count by a factor of 1.25 (or 125%).

3

Adjust the share quantity for the subsequent 10% stock dividend.

Final share count becomes

500 \times (1 + 0.10) = 550

shares.

The 10% stock dividend applies to the current post-split balance of 500 shares.

4

Compute the updated per-share cost basis.

\frac{\$22,000}{550 \text{ shares}} = \$40.00 \text{ per share}.

Dividing the total position cost by the updated final share count gives the new cost basis per share.

Key Concept

Adjusting Position Cost Basis for Multiple Corporate Actions (Stock Splits and Stock Dividends)

Question 105Question →

An investor opens a new margin account with a broker-dealer and executes an initial long purchase of $80$ shares of a marginable equity security at $\$30$ per share. Assuming there is no prior cash or securities balance in the account, what is the minimum cash deposit, in dollars, that the investor must make to satisfy Regulation T and FINRA initial margin requirements?

Show answer & explanation

Answer: 2000

Answer

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

Under Federal Reserve Regulation T, an investor purchasing stock on margin must deposit 50% of the purchase value. Here,

80 \times \$30 = \$2,400

, so Regulation T requires

\$1,200

. However, FINRA Rule 4210 dictates that the minimum initial equity for opening a margin account is

\$2,000

(or 100% of the purchase price if the purchase is under

\$2,000

). Because the total purchase price of

\$2,400

falls between

\$2,000

and

\$4,000

, the investor must deposit the higher FINRA minimum amount of

\$2,000

.

Step-by-Step Solution

1

Calculate total purchase value.

80 \times \$30 = \$2,400

Determining the total transaction amount is necessary to evaluate margin rules.

2

Calculate Regulation T requirement.

50\% \times \$2,400 = \$1,200

Federal Reserve Board Regulation T standard initial margin requirement is 50% of the purchase price.

3

Apply FINRA minimum initial equity rule.

FINRA minimum deposit requirement = \$2,000

FINRA rules mandate a minimum initial equity deposit of

2,000 for new margin accounts when the total purchase price is between

2,000 and $4,000.

Key Concept

FINRA Initial Margin Minimum Equity Rule

Question 106Question →

An investor opens a new margin account with no prior position or cash balance and executes an initial transaction selling short 100 shares of ABC common stock at $28 per share. What is the minimum dollar amount of equity the investor must deposit to satisfy Federal Reserve Board Regulation T and FINRA initial margin requirements?

Show answer & explanation

Answer: 2000

Answer

The investor must deposit $2,000.

To open a short position in a new margin account, the investor is subject to both Federal Reserve Board Regulation T (50% of the total transaction value) and FINRA initial minimum equity rules. The total short sale value is

2,800 (100 shares ×

28). Regulation T requires 50% of

2,800, which equals

1,400. However, FINRA rule mandates an initial minimum equity deposit of

2,000 for margin account transactions. Because the investor must meet the more stringent requirement, the customer must deposit

2,000.

Step-by-Step Solution

1

Calculate the total market value of the short transaction

2,800 (

100 \text{ shares} \times \

28

per share)

Determining total market value is the baseline for evaluating initial margin rules.

2

Compute the Regulation T requirement

1,400 (

2,800 \times 50\%)$

Federal Reserve Board Regulation T imposes a standard 50% initial margin requirement on short sales of marginable equity securities.

3

Evaluate the FINRA initial minimum equity rule

$2,000 requirement

FINRA rules state that the minimum initial equity required to establish a margin position is

2,000, unless the total value of a long purchase is less than

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

4

Compare Regulation T and FINRA minimum rules to determine the final deposit

$2,000

The customer must satisfy the stricter of the Regulation T requirement (

1,400) or the FINRA initial equity rule (

2,000).

Key Concept

FINRA Initial Minimum Equity Deposit Requirement for Short Sales

Question 107Question →

An investor opens a new margin account with no existing positions or cash balance and purchases $100$ shares of ABC common stock at $\$34$ per share. What is the minimum dollar amount of equity the investor must deposit to meet Federal Reserve Regulation T and FINRA initial margin requirements?

Show answer & explanation

Answer: 2000

Answer

The investor must deposit a minimum of

\$2,000

in equity.

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

50\%

of the purchase price, which equals

\$1,700

(

50\% \times \$3,400

). However, FINRA Rule 4210 stipulates that the minimum initial equity deposit in a new margin account must be at least

\$2,000

(or

100\%

of the purchase price if the total cost is under

\$2,000

). Since the total purchase value is

\$3,400

(which is greater than

\$2,000

), the investor must deposit the higher amount of

\$2,000

to fulfill all regulatory requirements.

Step-by-Step Solution

1

Calculate the total purchase cost of the transaction.

100 \text{ shares} \times \$34/\text{share} = \$3,400

total market value.

Margin calculations begin by establishing the total value of the securities purchased.

2

Calculate the Federal Reserve Regulation T initial margin requirement.

50\% \times \$3,400 = \$1,700

.

Regulation T mandates a base initial margin deposit of

50\%

of the purchase value.

3

Evaluate the FINRA minimum initial equity requirement for long margin purchases.

FINRA Rule 4210 requires a minimum initial equity deposit of

\$2,000

for transactions exceeding

\$2,000

in total value.

FINRA rules set an absolute dollar floor of

\$2,000

for initial equity deposits in new margin accounts.

4

Determine the governing deposit amount.

The required initial deposit is

\$2,000

.

Because the calculated Regulation T requirement (

\$1,700

) is less than FINRA's

\$2,000

minimum equity requirement, the investor must satisfy the larger FINRA requirement.

Key Concept

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

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