A customer establishes a combined margin account by purchasing $10,000 of ABC stock and selling short $10,000 of XYZ stock, depositing the Regulation T requirement. Subsequently, the market value of the ABC position increases to $20,000, while the market value of the XYZ position decreases to $5,000. If no other activity occurs in the account, the account will show a current SMA balance of

Question

Amare Daniels

Business

24 June, 03:28

A customer establishes a combined margin account by purchasing $10,000 of ABC stock and selling short $10,000 of XYZ stock, depositing the Regulation T requirement. Subsequently, the market value of the ABC position increases to $20,000, while the market value of the XYZ position decreases to $5,000. If no other activity occurs in the account, the account will show a current SMA balance of

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Olive Hanson · Answer 1

Current SMA balance is $15,000

Explanation:

SMA means special memorandum account, where excess margin recouped from investing the fund in customer's margin account is held.

Since ABC was bought for $10,000, while it's current worth is $20,000

Margin recorded = $20,000 - $10,000

= $10,000

XYZ stock sells short at $10,000, while it's current worth is $5,000

Margin recorded on short sell

=$10,000 - $5,000

=$5,000

SMA current balance

= $10,000 + $5,000

= $15,000