A:

ABC stock – 200 shares.
CMV $40/share PDQ stock – 100 shares.
CMV $30/share LIB stock – 100 shares.
CMV $50/ share
Debit balance -- $6,400



If this customer used any SMA in the account to its maximum by purchasing stock, the DR balance in the account would be:



A) $12,800
B) $9,600
C) $8,000
D) $3,200




The correct answer is B.



Any time an investor uses SMA, he/she is borrowing money from the broker-dealer and increasing the DR balance. SMA has a purchasing power equaling the SMA x 2 ($1,600 x 2 = $3,200). The broker-dealer will loan the client an additional $3,200 to purchase stock. Add this to the existing DR balance of $6,400 + $3,200 = $9,600.



RELATED FAQS

  1. What are the similarities and differences between the savings and loan (S&L) crisis ...

    Learn about some of the similarities and differences between the savings and loan crisis and the subprime mortgage crisis ...
  2. What are some common cash-debt strategies that occur during a spinoff?

    Learn how a parent company can utilize cash-debt strategies in a spinoff process to deleverage and gain value by monetizing ...
  3. How can I determine the degree of financial leverage (DFL) for a particular company?

    Learn about degree of financial leverage, what it measures and how to calculate a company's degree of financial leverage.
  4. Why should investors be wary of off balance sheet financing activities?

    Find out why investors should be wary of off-balance-sheet financing, including how businesses use this accounting technique ...
RELATED TERMS
  1. Borrowing Power Of Securities

    The value associated with being able to invest in securities ...
  2. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  3. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Ceded Reinsurance Leverage

    The ratio of ceded insurance balances to policyholders’ surplus. ...

You May Also Like

Related Articles
  1. Stock Analysis

    Should You Short These Debt-Laden Stocks?

  2. Investing Basics

    Netflix's Billion-Dollar Content Licensing ...

  3. Technical Indicators

    Using Bullish Candlestick Patterns To ...

  4. Trading Strategies

    Profitable Long-Term Consolidation Patterns

  5. Chart Advisor

    ChartAdvisor for June 19 2015

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!