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19 January, 23:30

In a new margin account, a customer buys 1,000 shares of ABC stock at $40 per share. The stock rises to $50 during the next week and subsequently declines to $39. If there are no other transactions in the account, the current SMA balance would be:A. 0

B. $2,500

C. $5,000

D. $10,000

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Answers (1)
  1. 20 January, 00:31
    0
    C) $5,000

    Explanation:

    Since the price of the stocks first rose to $50, the account's equity was $50,000.

    The SMA balance was = ($50,000 x 1/2) - $20,000 = $,5000

    The SMA balance acts like a stabilizer and cannot be taken away even if the price of the stocks fall slightly. The price of stocks must fall 25% in order for the SMA to be withdrawn.

    The investor's equity decreased = equity - margin requirement = $39,000 - $20,000 = $19,000, but the amount that the investor can borrow (SMA balance) will remain the same at $5,000.
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Home » Business » In a new margin account, a customer buys 1,000 shares of ABC stock at $40 per share. The stock rises to $50 during the next week and subsequently declines to $39. If there are no other transactions in the account, the current SMA balance would be:A.
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