Margin accounts are established to allow investors the ability to use leverage with their investments.

By Investopedia AAA
A:

The initial margin, which is set by the Federal Reserve, is what percentage?

A) 50%
B) 10%
C) 25%
D) 30%




The correct answer is A.



A margin account allows you to buy additional securities by leveraging the value of your eligible shares. The initial margin is 50% which is set by the Federal Reserve.This means that when an investment is made by an investor, half of the funds must be put up by the investor and the other half is borrowed from the broker. The broker (lender) will charge the investor margin interest to compensate for the loan arrangement.



RELATED FAQS

  1. How does DuPont Analysis measure financial leverage?

    Learn about how DuPont analysis measures financial leverage using the equity multiplier, and see when the equity multiplier ...
  2. How does additional equity financing affect existing shareholders?

    Learn about how equity financing affects existing shareholders. By issuing and selling shares on the open market, equity ...
  3. What is the equity multiplier's affect on Return on Equity (ROE)?

    Learn about how to calculate the equity multiplier in the three-step DuPont analysis method, and see what impact a higher ...
  4. How do I calculate the degree of operating leverage?

    Learn about the degree of operating leverage, what it measures and how to calculate a company's degree of operating leverage ...
RELATED TERMS
  1. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  2. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company ...
  3. Ceded Reinsurance Leverage

    The ratio of ceded insurance balances to policyholders’ surplus. ...
  4. Total Debt-to-Capitalization Ratio

    An indicator that measures the total amount of debt in a company’s ...
  5. Equity Multiplier

    The ratio of a company’s total assets to its stockholder’s equity. ...
  6. Leveraged Buyback

    A repurchase of significant amount of shares through the use ...

You May Also Like

Related Articles
  1. Brokers

    Private Equity's Returns Are Tempered ...

  2. Stock Analysis

    Is Prospect Capital Exposed To Elevated ...

  3. Mutual Funds & ETFs

    Buying ETFs on Margin Versus Leveraged ...

  4. Investing

    Ready To Invest In Financial Leverage ...

  5. Stock Analysis

    The Most Famous Leveraged Buyouts

Trading Center