Question 10

The minimum amount of equity that the customer must initially deposit in the new margin account is $1,750.

To calculate the minimum equity required for a new margin account, one needs to consider the regulations set by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). In this case, the total cost of purchasing 100 shares of ABC at $35 each is $3,500, and the initial margin requirement is typically 50%, which results in a minimum equity requirement of $1,750.

A) $975

This option is incorrect because $975 is less than the required minimum equity. The calculation for the minimum deposit is based on the total purchase price of $3,500 and the standard initial margin requirement of 50%, which yields a minimum equity of $1,750.

B) $1,750

This option is correct as it accurately reflects the minimum amount of equity that must be deposited in the margin account. Given the total cost of $3,500 for 100 shares, 50% of this amount equals $1,750, meeting the regulatory requirements for opening a margin account.

C) $2,000

This option is incorrect because $2,000 exceeds the required minimum equity. While it is above the minimum, it does not represent the correct calculation based on the total purchase price and the initial margin requirement of 50%.

D) $3,500

This option is incorrect as it represents the total cost of the shares rather than the minimum equity required. The initial deposit must only be 50% of the total purchase price, which is $1,750, making this option significantly higher than necessary.

Conclusion

The correct answer, $1,750, is derived from the requirement that customers must deposit at least 50% of the total purchase price in a new margin account. All other options either fall short of or exceed this requirement, failing to represent the accurate minimum equity needed to comply with regulatory standards.