In one of the EOC questions, it was stated that “The stock was bought on 75 percent margin.”
I interpreted it that 75% of the total was borrowed on margin and 25% was the money that the buyer had to post.
Considering this is the CFAI text, does “bought on X percent margin” mean that the initial margin is (1-X)? How should I remember this so I don’t trip up on the exam? Inutitively, buying something on margin is like buying something on credit (borrowed) to me.
I feel like it was just worded a bit strangely. When they say “Bought on X percent margin” I believe they are referring to how much IM was put down.
Whenever I see the word margin in questions like this, the first thing I think is “oh margin, that’s an amount of cash that needs to be in the account.”
One of the great things about the CFA exams is that they are incredibly clear about what they mean in each question.
I know that often prep providers can be extremely vague about what they mean in a question, and that that’s quite frustrating for candidates. Be assured, however, that CFA Institute isn’t remotely vague about what they mean in a question. They are extremely clear. If they mean that you are putting up 25% of the stock price and borrowing 75% of the price, they’ll make that abundantly clear.
In short: don’t worry about it.
The worrying part is that the question is from the CFAI EOC questions.