Series 7 Exam Question 51: Answer and Explanation

Question: 51

Alyssa has a long margin account with a market value of $30,000, a debit balance of $10,000, an equity of $20,000, and an SMA of $5,000. What is the buying power?

• A. $2,500
• B. $5,000
• C. $10,000
• D. $20,000

Correct Answer: C

Explanation:

C. Buying power is the amount of securities an investor can purchase or short on margin with their excess equity. This investor has $5,000 in excess equity (SMA – Special Memorandum Account), so this investor can purchase or short another $10,000 worth of securities on margin. The equation looks like this:

$\text{buying}\text{power}=\frac{\text{SMA}}{\text{Reg}\text{T}}=\frac{\$5,000}{50\%}=\$10,000$

Remember, unless told differently, you can assume that Regulation T (Reg T) is 50%.