A customer establishes a combined margin account by purchasing $20,000 of ABC stock and selling short $30,000 of XYZ stock, depositing the Regulation T requirement. Subsequently, the market value of the ABC position increases to $25,000, while the market value of the XYZ position decreases to $26,000. If no other activity occurs in the account, the account will show a current SMA balance of:

Question

Business

Alisha Saunders

28 July, 19:39

A customer establishes a combined margin account by purchasing $20,000 of ABC stock and selling short $30,000 of XYZ stock, depositing the Regulation T requirement. Subsequently, the market value of the ABC position increases to $25,000, while the market value of the XYZ position decreases to $26,000. If no other activity occurs in the account, the account will show a current SMA balance of:

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Markus Pearson · Answer 1

Current SMA balance is $9,000

Explanation:

To start with, SMA is an acronym for Special Memorandum Account. It is an account where excess margin made from investing the funds in the customer's margin account is held.

The margin from the combined margin account is computed thus:

ABC stock was purchased for $20,000

Its current worth is $25,000

margin recorded=$25,000-$20,000=$5,000

XYZ stock was sold short for $30,000

its current worth is $26,000

margin recorded on short sell=$30,000-$26,000=$4,000

SMA balance=total margins=$5,000+$4,000=$9,000