Series 7 Exam Question 370: Answer and Explanation

Question: 370

An investor opens a margin account by purchasing 1,000 shares of ABC at $15 per share and shorting 1,000 shares of DEF at $12 per share. What is the investor's margin call as a result of these transactions?

• A. $1,500
• B. $3,000
• C. $13,500
• D. $27,000

Correct Answer: C

Explanation:

C. This investor is opening a combined (long and short) margin account. The best way to deal with this is to treat each transaction separately. The investor is purchasing $15,000 ($15 × 1,000 shares) worth of ABC and shorting $12,000 ($12 × 1,000 shares of DEF). Assuming Regulation T at 50 percent, this investor would have to come up with 50 percent of each transaction.

This investor would have to deposit $13,500 as a result of the two transactions.