Series 7 Exam Question 48: Answer and Explanation

Question: 48

An investor has a margin account with $45,000 in securities, a debit balance of $20,000, and equity of $25,000. With Regulation T at 50%, how much does this investor have in excess equity?

  • A. $0
  • B. $2,250
  • C. $2,500
  • D. $5,000

Correct Answer: C


C. Remember, for this investor to be properly margined, they must have at least 50% of the current market value (CMV) in equity (EQ). That equation looks like this:

Margin requirement=Regulation T×CMVMargin requirement=50%×$45,000=$22,500 

Next, to determine the excess equity (SMA – Special Memorandum Account), use the following equation:

SMA=EQMargin requirementSMA=$25,000$22,500=$2,500

Remember, the SMA is excess equity that can be withdrawn or used to purchase additional securities.

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