Under the described margin requirements, what percentage of the purchase must be paid in cash?

• A. 25%
• B. 50%
• C. 75%
• D. 100%

Answer: (B)

The concept being tested is the initial margin requirement for buying on margin. Under Regulation T, the buyer must deposit half of the purchase price in cash (or equivalent marginable securities) when initiating a margin purchase. The broker can lend the other half, which means you’re financing the rest with margin. That’s why the correct amount to pay in cash is 50% of the purchase price.

Note: 25% (often cited) relates to maintenance margin—the minimum equity you must maintain after the purchase, not the cash you must put up initially. The other options (75% or 100%) would require more or all of the purchase to be paid in cash, which isn’t the standard initial margin rule.