SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 68: Answer and Explanation

Question: 68

What portion of the cost of a security purchased on margin must be paid by the customer?

• A. At least 45 percent
• B. At least 25 percent (or the amount over $1,000)
• C. At least 30 percent
• D. At least 50 percent (or the amount over $500)

Correct Answer: D

Explanation:

D: Choice D is correct because at least half of the purchase price, or the part of the purchase price in excess of $500, must be paid by the customer. Choices A, B, and C are incorrect because the Federal Reserve Board of Governors is allowed to set the proportion of the purchase price of a security that must be paid in cash. This has been as low as 40% and as high as 100%. Since 1974, the requirement has been fifty percent.