Friday, January 25, 2008

Margin Accounts Exam - Series 7 Margin

A customer has a short margin account with a short market value of $22,000, a credit balance of $42,000 and SMA of $500. What is the equity in the account?

A) $500
B) $20,000
C) $20,500
D) $37,000

Correct answer is B: The equity in a short margin account is equal to the credit balance minus the short market value. SMA is not used when computing equity.


A customer has a short margin account with a short market value of $22,000, a credit balance of $42,000 and SMA of $500. What is the NYSE minimum equity maintenance on this account?

A) $5500
B) $6000
C) $6600
D) $12,600

Correct answer is C: Minimum equity maintenance on short margin accounts is 30%. NYSE rules state that you must maintain at least 30% equity based on the current short market value. The short market value of $22,000 must be multiplied by 30%. This equals $6600.

. Initial margin deposit minimum requirements are set by the:

A) NYSE
B) NASD
C) FDIC
D) FRB


Correct answer is D: The Federal Reserve Board sets the initial margin deposit requirements (Reg. T). The NYSE sets the ongoing minimum equity maintenance requirements.

A customer has a short margin account. The account has equity of $15,000 and a credit balance of $28,000. What is the current NYSE minimum maintenance equity requirement on this account?

A) $3900
B) $4500
C) $3250
D) $3750

Correct answer is A: The minimum maintenance on short accounts is 30% of the current market value. The credit balance is $28,000. The market value can be found by subtracting the equity ($15,000) from the credit balance ($28,000). This puts the short market value at $13,000. $13,000 times 30% is $3900.

When the market value in a long margin account decreases, the SMA will:

A) Increase
B) Decrease
C) Stay the same
D) Fluctuate

Correct answer is C: SMA does not decline as the market declines.


The type of account that designates power of attorney to an investment adviser for the benefit of others, is a(an):

A) Joint account
B) Omnibus account
C) Margin account
D) Affiliate account


Correct answer is B: An omnibus account is set up for investment advisers, so they can handle multiple accounts that they may be managing. Individual accounts must be set up for each client as well.

A corporate margin account requires which of the following documents?

A) Corporate resolution
B) Corporate charter
C) Both A and B
D) None of the above

Correct answer is C: Corporate margin accounts require the corporate resolution and the corporate charter. Cash accounts would only require the corporate resolution.

A customer in a new margin account sells 100 shares short of GYW at $50. Assuming this is the only position in the account, what would the opening credit balance be?

A) $10,000
B) $7500
C) $5000
D) $2500

Correct answer is B: Reg. T is 50%. Although this is a new account transaction, $2500 would be required (50% of $5000). This requirement would be added to the proceeds of the short sale transaction. $5000 was sold short plus $2500 margin would equal a credit balance of $7500. This amount is available to cover the short sale.

SEE: Series 7 Course

1 comment:

Andrew said...

Long margin account set ups are very similar to a personal balance sheet. Where Assets minus liabilities equals net worth (or equity), in a long margin account it's Long Market Value minus Debit Balance equals Equity. Or you can look at a house payment with a loan mortgage on it. The value of the asset minus the loan equals equity.

As stock values increase, the debit balance stays the same much like a mortgage but the equity increases. When a firm margins a customer account they are loaning a flat amount. Will post more in depth as a fresh post on Margin soon.

Good studying!

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