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Question 1 of 10
1. Question
Which of the following statement(s) is (are) true about Special Memorandum Accounts (SMAs)?
I. SMA can be cashed out by the investor or it can be used as leverage to buy more securities.
II. An investor in a short margin account gains, or creates, SMA when the stock they sold loses value.
III. When a margin account exceeds Reg. T or FINRA requirements, the excess is called a special memorandum account (SMA).
IV. SMAs work like a credit line: the investor can withdraw money from the account, reducing their equity, or simply leave the SMA.Correct
SMA can be cashed out by the investor or it can be used as leverage to buy more securities.
An investor in a short margin account gains, or creates, SMA when the stock they sold loses value.
When a margin account exceeds Reg. T or FINRA requirements, the excess is called a special memorandum account (SMA).
SMAs work like a credit line: the investor can withdraw money from the account, reducing their equity, or simply leave the SMA.Incorrect
SMA can be cashed out by the investor or it can be used as leverage to buy more securities.
An investor in a short margin account gains, or creates, SMA when the stock they sold loses value.
When a margin account exceeds Reg. T or FINRA requirements, the excess is called a special memorandum account (SMA).
SMAs work like a credit line: the investor can withdraw money from the account, reducing their equity, or simply leave the SMA. -
Question 2 of 10
2. Question
How will you calculate equity for short margin accounts?
Correct
EQ = purchase price – short market value (SMV) + margin call
Incorrect
EQ = purchase price – short market value (SMV) + margin call
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Question 3 of 10
3. Question
Mark Black has opened a short margin account to sell $10,000 worth of XYZ stock. He deposited $5,000 to comply with FINRA rules. Two months later, the XYZ stock he sold short is trading at $9,000. What will be his equity?
Correct
To calculate his equity you must first take the $10,000 he bought the securities for and deduct the short market value (SMV) then add the margin call amount of $5,000.He has $6,000 in equity.
Incorrect
To calculate his equity you must first take the $10,000 he bought the securities for and deduct the short market value (SMV) then add the margin call amount of $5,000.He has $6,000 in equity.
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Question 4 of 10
4. Question
Mary Grey has opened a margin account to buy $5,000 of DEF stock. She has made the minimum deposit of $2,500 (meeting Reg. T and FINRA requirements) when she established this account. A month later, her stock is trading at $5,500. Her equity is-
Correct
To calculate her equity, you will take the long market value of $5,500 and deduct the $2,500 she owes her broker to arrive at $3,000 in equity.
Incorrect
To calculate her equity, you will take the long market value of $5,500 and deduct the $2,500 she owes her broker to arrive at $3,000 in equity.
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Question 5 of 10
5. Question
Richard Moore has a long margin account with a market value of $30,000.
His debit balance is $10,000 with equity at $20,000. His SMA is $4,000 with a Reg. T requirement of 60 percent. What is his buying power?Correct
To calculate his buying power, you would take his SMA of $4,000, and divide it by 60 percent to arrive at
$6,667.Incorrect
To calculate his buying power, you would take his SMA of $4,000, and divide it by 60 percent to arrive at
$6,667. -
Question 6 of 10
6. Question
Which of the following statement(s) is (are) true about margin account?
I. Margin accounts in particular expose investors to great potential losses, which is when FINRA and NYSE step in.
II. A margin account that drops below Reg. T requirements becomes restricted.
III. The objective to opening a margin account is to profit, or gain equity, from buying or selling securities without having to make the full investment.
IV. A margin account can remain restricted as long as it does not fall below minimum maintenance.Correct
Margin accounts in particular expose investors to great potential losses, which is when FINRA and NYSE step in. A margin account that drops below Reg. T requirements becomes restricted. The objective to opening a margin account is to profit, or gain equity, from buying or selling securities without having to make the full investment. A margin account can remain restricted as long as it does not fall below minimum maintenance.
Incorrect
Margin accounts in particular expose investors to great potential losses, which is when FINRA and NYSE step in. A margin account that drops below Reg. T requirements becomes restricted. The objective to opening a margin account is to profit, or gain equity, from buying or selling securities without having to make the full investment. An investor gains from selling short stock on margin if this stock declines, so he or she can buy it back at a lower price. A margin account can remain restricted as long as it does not fall below minimum maintenance.
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Question 7 of 10
7. Question
Which of the following statement is true about SMA and restriction?
Correct
SMA equals profit, and restriction means loss for the investor.
Incorrect
SMA equals profit, and restriction means loss for the investor.
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Question 8 of 10
8. Question
Chris Miller used his margin account to sell short 400 shares of ABC stock at $40 a share. ABC’s market value went up to $44 a share. What will be Miller’s margin account restriction?
Correct
To calculate Miller’s margin account restriction, you must first calculate his credit balance by taking his original SMV of $16,000 and adding $8,000 in equity he put in to meet Reg. T requirements to arrive at $24,000 CR.
To find Miller’s equity after ABC stock went up, you take his credit and deduct the new SMV of $17,600 to arrive at $6,400 in equity. The new margin requirement is $8,800; deduct his equity to arrive at a restriction of $2,400.
Incorrect
To calculate Miller’s margin account restriction, you must first calculate his credit balance by taking his original SMV of $16,000 and adding $8,000 in equity he put in to meet Reg. T requirements to arrive at $24,000 CR.
To find Miller’s equity after ABC stock went up, you take his credit and deduct the new SMV of $17,600 to arrive at $6,400 in equity. The new margin requirement is $8,800; deduct his equity to arrive at a restriction of $2,400.
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Question 9 of 10
9. Question
Which one is the correct Minimum maintenance for long margin accounts?
Correct
Minimum maintenance for long margin accounts is 25 percent of LMV.
Incorrect
Minimum maintenance for long margin accounts is 25 percent of LMV.
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Question 10 of 10
10. Question
Which one is the correct Minimum maintenance for short margin accounts?
Correct
The minimum maintenance for short margin accounts is 30 percent of SMV.
Incorrect
The minimum maintenance for short margin accounts is 30 percent of SMV.