FINRA Series 7Investment Information and Suitable RecommendationsHard
A customer buys 1,000 shares of ABC stock at $50 per share in a margin account, meeting the 50% Regulation T initial margin requirement. The stock later declines to $30 per share, and the maintenance margin requirement is 25% of market value. What is the maintenance margin call amount, if any?
- A$7,500
- BNo call; the account has sufficient equity
- C$12,500
- D$2,500
Show answer & explanationAnswer & explanation
Correct answer: D. $2,500
Initial purchase: 1,000 × $50 = $50,000; debit balance (loan) = 50% = $25,000. New market value = 1,000 × $30 = $30,000. Equity = $30,000 − $25,000 = $5,000. Maintenance requirement = 25% × $30,000 = $7,500. Margin call = $7,500 − $5,000 = $2,500.
Why the other options are wrong
- A. Incorrect — $7,500 is the maintenance requirement itself, not the call amount.
- B. Incorrect — equity of $5,000 is below the $7,500 maintenance requirement, so a call exists.
- C. Incorrect — this does not reflect the correct equity or requirement calculation.
Maintenance Margin Call Calculation
When a margin account's equity falls below the maintenance requirement (a percentage of current market value), the customer must deposit the shortfall to meet the call.
- Equity = Market value − Debit balance
- Debit balance remains fixed unless additional funds deposited or withdrawn
- Margin call amount = Required equity − Actual equity
Memory trick: Debit stays fixed; falling stock shrinks equity, triggering the call gap.