What Is the Rationale for Different Margin Requirements on Different

question 33

Essay

What is the rationale for different margin requirements on different types of securities? (For example,50 percent on common stock,and 30 percent on bonds corporate bonds)

---

Definitions:

Convertible Bonds

Bonds that can be converted into a predetermined amount of the issuing company's equity at certain times during its life, usually at the discretion of the bondholder.

Call Option

A financial contract giving the buyer the right, but not the obligation, to buy an asset at a specified price within a predetermined period.

Conversion Ratio

The number of shares a bondholder can receive upon converting their bonds into equity shares.