Which Loans Must Be Combined for Margin Requirements?

D

The margin requirements of Regulation U apply to loans made by banks and other lenders for the purpose of purchasing or carrying margin stock. Margin stock refers to securities that can be bought on margin, which means that an investor can borrow money from a broker to buy more shares than they would otherwise be able to afford. Regulation U is designed to prevent excessive speculation in the stock market by limiting the amount of credit that can be extended for margin trading.

In this case, First National Bank made four loans to Mr. James Wilson, but only three of them were for purchasing margin stock. Loan D was for purchasing a car and was secured by the car, so it is not subject to the margin requirements of Regulation U.

Loans A and B were both made for purchasing margin stock and were secured by margin stock. Therefore, they must be combined for purposes of the margin requirements of Regulation U. The combined amount of these loans cannot exceed the maximum loan value (MLV) of the margin stock pledged as collateral. The MLV is the amount of credit that can be extended for margin trading based on the current market value of the margin stock.

Loan C was also for purchasing margin stock, but it was unsecured. Therefore, it does not need to be combined with Loans A and B for purposes of the margin requirements of Regulation U.

So, the correct answer is (B) Loans A and B.