SIE practice questionhardMargin Calls
An investor purchases $20,000 worth of stock in a margin account, depositing the required Reg T margin of $10,000. If the stock declines to $12,000, what is the equity in the account?
- A$2,000✓ Correct answer
- B$8,000
- C$10,000
- D$12,000
Explanation
Why A — $2,000
Equity = Market value - Debit balance. The debit balance (amount borrowed) remains $10,000 regardless of the stock's value. Market value is now $12,000. Equity = $12,000 - $10,000 = $2,000. The equity percentage is $2,000/$12,000 = 16.7%, which is below the 25% maintenance requirement, so a margin call would be issued. The investor must deposit additional funds to bring equity back to acceptable levels.
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