Series 7 practice questionmediumMargin Accounts — Long Margin
A client purchases $80,000 of stock on margin, depositing the Reg T requirement. What is the debit balance in the account?
- A$20,000
- B$30,000
- C$40,000✓ Correct answer
- D$60,000
Explanation
Why C — $40,000
Under Reg T's 50% requirement, the client deposits $80,000 x 50% = $40,000 in equity. The debit balance (amount borrowed from the broker) is $80,000 - $40,000 = $40,000. The relationship is: Market Value = Equity + Debit Balance, or $80,000 = $40,000 + $40,000. The client pays interest on the $40,000 debit balance.
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