Question

A customer opens a new margin account with the following position:

Long: 1,000 XYZ Cmn
Mkt Value: $20,000
Debit: $10,000

If the market value rises to $22,000, how much SMA is created?

Answer 1

$1,000

Step-by-step explanation:

The above means that for every $1 increase in the market value in a long margin account, the SMA increases by $0.50

If the market value rises to $22,000, the account will show

Long market value - Debit = Equity % SMA

$22,000 - $10,000 = $12,000

Against $22,00 of market value, 50% can be borrowed or $11,000. Since the debit is $10,000, an additional $1,000 can be borrowed . This is the SMA