Question

A client opens a new margin account and, as the initial trade, purchases 300 shares of MS Corporation common stock at $10 per share. The firm would send the client a margin call for________

Answer 1

A margin call in a new margin account for stock transactions is issued if the account equity falls below the required minimum set by regulatory authorities or the brokerage firm's own rules.

Step-by-step explanation:

The question is related to the purchase of stocks on margin in a new margin account. When buying on margin, you pay only a portion of the stock's cost and borrow the rest from the brokerage firm. The brokerage firm would issue a margin call if the equity in your account falls below the firm's required minimum, which is typically set by the Financial Industry Regulatory Authority (FINRA) or the brokerage firm's own rules.

For example, if the minimum margin requirement is 50%, the client would need to have at least $1,500 in equity in their account ($10 per share * 300 shares = $3,000 total purchase; 50% * $3,000 = $1,500 required equity). If the client does not meet this equity with the initial transaction, the firm will send a margin call for the amount needed to reach the required equity level.