Question

Stephen is purchasing 700 shares of KPT, Inc., stock at a price per share of $20.80. What is the minimum amount the Federal Reserve will require Stephen to pay in cash for this purchase?

Answer 1

Federal Reserve will require Stephen to pay $7,280 in cash for this purchase

Step-by-step explanation:

There is a legal requirement from the federal that for an investor to deposit 50% cash of the purchase of shares / securities value in the margin account. It is called the margin requirement.

Purchase Value = Number of shares x Price per share

Purchase Value = 700 shares x 20.8

Purchase Value = $14,560

Inityial Margin Requirement = $14,560 x 50% = $7,280