Series 7 practice questionmediumMargin Accounts — Long Margin
A scenario: An investor deposits $30,000 cash into a new margin account. Under Regulation T, what is the maximum total market value of securities the investor can purchase?
- A$30,000
- B$45,000
- C$60,000✓ Correct answer
- D$120,000
Explanation
Why C — $60,000
Under Reg T's 50% initial margin requirement, the investor must deposit at least 50% of the purchase price. With $30,000 in cash, the maximum purchase = $30,000 / 0.50 = $60,000. The investor deposits $30,000 (equity) and borrows $30,000 (debit balance) from the broker. The buying power of a margin account is 2x the cash deposited (at the 50% Reg T rate).
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