Question

A customer has an existing short margin account with credits of $16,000 and a short position in ABC stock worth $10,000. The SMA in the account is $1,000. If the market value of ABC falls to $9,000, the equity is:A. $6,000B. $7,000C. $8,000D. $9,000

Answer 1

Answer:

B. $7,000

Explanation:

What is a short margin Account

The proceeds of short sale transaction are usually deposited in the short margin account. The short sale transaction is a transaction that involves the borrowing of shares by an investor to sell on the market with the hope that he/she will be able to then buy them back when the share price decreases in the future.

Therefore, if the market value of the ABC shares falls to $9,000, the equity

= Short Margin Account Credits - The value of the Short Market Value

= $16,000 - $9,000

= $7,000