An Investor Receives a Margin Call Because

question 46

Multiple Choice

An investor receives a margin call because

• A) the value of the stock that was sold short has decreased below a price specified by the broker.
• B) the brokerage firm wants to provide her with information about a new public stock issue that it will be handling in the future.
• C) interest rates in the financial markets have increased substantially,and the brokerage firm wants her to immediately repay the loan she has outstanding.
• D) the Federal Reserve intends to sell a special issue of Treasury securities and it needs investors to subscribe to the issue as quickly as possible.
• E) the price of the stock she purchased on margin has decreased enough so that the actual margin is below the maintenance margin.

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Definitions:

Tax

A mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Utility Function

A rephrased definition: A tool in economics to quantify an individual's satisfaction from consuming different bundles of goods and services.

Price

The sum of money needed to buy a product or service.

Utility Function

A mathematical representation expressing an individual's preference ordering over a set of goods and services, showing the level of satisfaction or utility derived from various bundles of goods.