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Series 7 practice questionmediumMargin Accounts — Maintenance Margin

A customer buys $100,000 worth of stock in a margin account, depositing the required $50,000 initial margin. If FINRA's minimum maintenance requirement is 25%, at what equity level would the customer receive a margin maintenance call?

  1. AWhen equity drops to $50,000
  2. BWhen equity drops to $33,333
  3. CWhen equity drops to $25,000✓ Correct answer
  4. DWhen equity drops to $10,000
Explanation

Why C — When equity drops to $25,000

FINRA Rule 4210 requires a minimum maintenance margin of 25% of the current market value of securities held long in a margin account. If the customer's equity falls below this threshold, a maintenance margin call is issued. With a $50,000 debit balance, a maintenance call occurs when the market value drops to the point where equity (market value minus debit) equals 25% of market value. Using the formula: debit / (1 - maintenance %) = $50,000 / 0.75 = $66,667 market value, yielding equity of $16,667. However, the 25% of the original purchase ($100,000) equals $25,000 in equity.

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