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The initial Federal Reserve Bank margin requirement is set at 60% and Bubba purchases 100 shares of XYZ at $100 per share. He deposits $6,000 of the $10,000 purchase price in his account.
If XYZ increases in value to $150 per share, how much excess equity would Bubba have in his account?
Suggested Answer: C
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$2,000. Bubba started with $6,000 of equity and a debit balance of $4,000. The market value of his XYZ stock increased by $5,000 ($15,000 - $10,000). Therefore, his equity increased to $11,000. Since Bubba only needs 60% equity, his Reg T requirement is $9,000 ($15,000 x 60%). His equity exceeds the requirement by $2,000.
12 comments · newest first
MY
Myrtie
1 year ago
Are we sure about those calculations? Seems off.
WI
Willow
1 year ago
I think it's $2,000 excess equity, right?
RE
Rebbeca
1 year ago
Wait, how does that translate to excess equity?
OL
Olene
1 year ago
So he has $5,000 in equity after the price jump!
GA
Garry
1 year ago
Bubba's total investment is $15,000 now.
LY
Lynna
1 year ago
I believe the margin requirement means he has to maintain a certain percentage, but I'm not sure how to apply that to find the excess equity in this case.
IS
Isabella
1 year ago
If I recall correctly, Bubba's initial investment was $6,000, and with the price increase, he should have a good amount of excess equity.
CR
Cristen
1 year ago
I'm a bit unsure about the exact calculations, but I feel like I practiced a similar question where we had to find the equity after a price increase.
SU
Sueann
1 year ago
I think I remember that excess equity is calculated by subtracting the margin requirement from the current value of the shares.
TU
Tu
1 year ago
I've seen questions like this before, so I'm feeling pretty confident. I think the key is to focus on the EVPN and Layer 2 service requirements.
KI
Kimbery
1 year ago
Key is understanding the geographic rules in the allocation chart. Each location has a specific Experience assignment.
SH
Sherill
1 year ago
I think the common application means we might only need one object for it, but I'm not sure how to account for the unique process.