Q:
Use the following information about a customer’s margin account to answer the question.
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
A:

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.

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