Question of the Week

A margin account has a long market value of $12,000, a debit balance of -$6,000 and a credit balance of $6,000. Which is/are TRUE about the this margin account if the share price of the stock purchased should appreciate 20% and the Reg T margin requirement is 50%?

I. Long market value is $14,400.
II. Debit balance is $7,200.
III. Reg T requirement is $6,000.
IV. Excess equity is $1,200.

a) I and IV
b) I only
c) I, II, III and IV
d) I, II and IV

Answer:

The correct answer is a.

I is correct since the stock's currently valued at $12,000 are increasing 20% or $2,400.
II is incorrect because the debit balance remains at $6,000.
III is incorrect since the Reg T requirement is $7,200.
IV is correct since: ($14,400/2) - $6,000 = $1,200.