CFA Level I · CFA Level I Exam · Equity Issuance and Trading
Following a sharp fall in the price of shares held in a margin account, the account's equity drops below the maintenance margin requirement. The broker most likely will require the investor to:
The broker will most likely require the investor to deposit additional cash or securities to restore the required margin. This margin call responds to equity falling below the maintenance level, and failing to meet it allows the broker to sell positions at market prices.
- Asell the shares at the original purchase price
- Bdeposit additional cash or securities to restore the required marginCorrect
- Crepay the interest on the loan before the loan is reduced
Explanation
When equity falls below maintenance margin, the broker issues a margin call requiring additional funds or securities to bring equity back up, or else positions may be liquidated. Selling at the original price is impossible as trades occur at market prices.
Did you get it right without looking?
One question tells you little. A timed set on Equity Issuance and Trading shows your real accuracy, how long you take and where you lose marks.
More Equity Issuance and Trading questions
- An investor places an order that must be executed immediately and in its entirety, or else be canceled. This order is best described as a:
- Which of the following best describes the primary purpose of a circuit breaker used by exchanges and regulators?
- Which of the following is the most likely reason that securities market regulation requires issuers to disclose material information?
- A trader owns shares bought at 40.00 that now trade at 55.00. To protect the gain by selling automatically if the price falls to 52.00, the …
- An investor buys 500 shares at $80 with 50% initial margin. One year later the price is $92. Ignoring interest, dividends and commissions, t…
- A stock's order book shows these limit orders. Buys: 1,000 shares at 20.10; 2,000 at 20.08. Sells: 1,500 at 20.12; 2,500 at 20.15. A new mar…