Margin Trading

You sold short 200 shares of XYZ common stock at $40 per share. The initial margin requirement was 60%. Your initial investment was _______________.

• $3200

• $4800

• $6000

• $8000

Suppose you purchase 400 shares of MLP common stock on margin at $25 per share. The initial margin is 60% and the maintenance margin is 30%. You will get a margin call if the stock price falls below _______________. (Assume the stock pays no dividends and ignore interest on the margin loan.)

• $7.50

• $16.70

• $21.43

• $14.29

An investor sells short 200 shares of stock at $15 per share. The initial margin requirement is 60%. The investor earns no interest on funds in the margin account and no dividends are paid. What is the investor's rate of return after one year if the short sale is covered at $12 per share?

• 33.3%

• 20%

• -20%

• -33.3%

Which of the following will happen if an investor is unable to contribute more equity to his account after receiving a margin call?

• The broker will sell investments in the account

• The broker will close the account

• The IRS will penalize the investor

• Civil charges will be filed against the investor

Which of the following may happen if an investor receives a margin call from his broker?

• The investor may send the broker more money to increase equity in the account

• The investor may be charged with a penalty fee equal to 25% of the portfolio value

• The investor will have his account closed by the end of the business week.

• All of these options are common responses to a margin call.

Please complete the Formula to calculate Margin :

Margin requirements = shares x price x _____________?

• brokerage rate

• margin rate percentage

• sale value

• purchase value

By doing margin trading, investors never incur loss

• True

• False

Margin trading allows you to buy securities by ___________ money

• lending

• borrowing

• spending

• not doing anything with the

With Margin Trading, investor can react quickly to market opportunities without having to worry about finding the cash to cover the transaction.

• True

• False

In margin trading, who is responsible for maintaining an excess margin balance on a daily basis

• broker

• investor

• Both broker and investor

• bank