Question

"A customer has an existing short margin account with credits of $16,000 and a short position in ABC stock worth $12,000. The SMA in the account is $1,000. If the market value of ABC falls to $8,000, the equity is:"

Answer 1

$8,000

Step-by-step explanation:

Short sale is a transaction involving an investor who borrows shares to sell in the market in anticipation of buying back the shares in the future when the market prices decreases. Where there is a proceed in short sale transaction, such will be deposited in a short margin account.

With regards to the above, if the market value of ABC shares falls to , then the equity would be;

Equity = Short margin account credits -Short market value

Equity = $16,000 - $8,000

Equity = $8,000