Long Margin Accounts

Question 1

What is the Long Margin account formula?

Answer 1

Long market value (LMV) - Debit = Equity

Question 2

What is the formula for margin percentage?

Answer 2

The Equity amount divided by the LMV

Question 3

What is interest charged on in long accounts?

Answer 3

The debit balance?

Question 4

What happens if the market value of the long account changes?

Answer 4

The equity changes

Question 5

If there is an increase in market value, how does this affect the debit balance?

Answer 5

There is no effect.

Question 6

How is SMA created?

Answer 6

If the account goes above initial margin of 50%

Question 7

What is the formula for SMA?

Answer 7

Equity - 50% of LMV - Debit

Question 8

Can SMA be borrowed?

Answer 8

In a long account, yes. Can be 100% cash or can be used to by 2x the amount of marginable security

Question 9

For every $1 increase in LMV, SMA INCREASES by?

Answer 9

50 cents

Question 10

What is a Restricted margin account?

Answer 10

The margin has fallen below 50% retention requirement

Question 11

What is a margin call account?

Answer 11

The margin has fallen below 25% retention requirement

Question 12

What are the restricted account rules?

Answer 12

If a sale is made, 50% of proceeds must be retained in the account

Question 13

How do you calculate the market value where the account will be a the 25% minimum maintenance?

Answer 13

Debit Balance / .75

Question 14

How do different transactions each affect SMA?

Answer 14

Customer buys - SMA falls
Customer sells - SMA rises
Market value rises - SMA increases
Market value falls - SMA STAYS THE SAME (1929)
Cash dividends - Increase SMA
Stock dividends - no effect on SMA