Question

"In a new margin account, a customer buys 1,000 shares of ABC stock at $40 per share. The stock rises to $45 during the next week and subsequently declines back to $40. If there are no other transactions in the account, the current SMA balance would be:"

Answer 1

Answer: SMA Balance $40000

Explanation:

the Special Memorandum Account(SMA) Balance will remain at $40000 (1000 x $40). The SMA Balance does not decrease when the market value of the security decrease

Answer 2

Answer:

$20,000

Explanation:

The balance of the special memorandum account (SMA) will equal half the total equity of the account. When an investor buys on the margin, he/she will invest $0.50 and the broker will invest the other $0.50.

So the investor's SMA = equity - margin requirement = $40,000 - $20,000 = $20,000