Question

"As the initial transaction in a new margin account, a customer buys 1,000 shares of XYZ stock at $30. The market value increases to $50. Which statements are TRUE?"

Answer 1

Answer:

II and IV

In a long margin account for every $1 rise in market value, equity will increase by $1. Since initial margin is set at 50%, for every $1 rise in market value, SMA increases by $.50 (that is, 50% of the market value increase can be borrowed). This account's equity went up $20,000; so the SMA would go up by 1/2 that amount, or by $10,000.

Explanation: