Question

A customer has combined margin account that shows the following:Long: $20,000 of ABC stock Debit: $8,000Short: $30,000 of XYZ stock Credit: $48,000If no other activity occurs in the account, the account will show a current SMA balance of?A. 0B. $5,000C. $8,000D. $10,000

Answer 1

Answer: $5000

Step-by-step explanation:

From the question, it is possible for the customer to borrow 50% of $20,000 which equals:

= 50% × $20,000

= 0.5 × $20,000

= $10,000

We can see that only $8000 was borrowed by the customer, this implies that the customer can still borrow:

= $10,000 - $8,000

= $2000 more.

The above is the SMA for the long account.

For the short account equity, 50% of $30,000 equals:

= 50% × $30,000

= 0.5 × $30,000

= $15,000

The equity in the account is $18,000. This means that there's an extra ($18,000 - $15,000) = $3000

Therefore, SMA will be:

= $3000 + $2000

= $5000