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CFA Level I · CFA Level I Exam · Equity Issuance and Trading

An investor buys 1,000 shares at $50 per share with an initial margin requirement of 40%. The investor borrows the remainder. The amount borrowed from the broker is closest to:

The loan is about $30,000. The position costs $50,000, the investor must contribute 40%, or $20,000, and the broker lends the remaining 60%. The $20,000 choice confuses the investor's equity with the borrowed amount.

  1. A$20,000
  2. B$30,000Correct
  3. C$40,000

Explanation

Purchase value = 1,000 × $50 = $50,000. Equity required = 40% × $50,000 = $20,000. Loan = $50,000 − $20,000 = $30,000. The $20,000 option is the investor's own equity, a wrong-base error.

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