FINRA Series 7Processes and Confirms TransactionsHard
A customer's combined margin account shows the following: long position market value $20,000 with a debit balance of $8,000, and short position market value $10,000 with a credit balance of $16,000. What is the customer's total combined equity in the account?
- A$16,000
- B$12,000
- C$14,000
- D$18,000
Show answer & explanationAnswer & explanation
Correct answer: D. $18,000
Long equity = LMV − Debit = $20,000 − $8,000 = $12,000. Short equity = Credit − SMV = $16,000 − $10,000 = $6,000. Combined equity = $12,000 + $6,000 = $18,000.
Why the other options are wrong
- A. This is the short-side credit balance alone, not net equity.
- B. This is only the long-side equity, ignoring the short side.
- C. This does not correspond to either calculation correctly combined.
Combined Margin Account Equity
In an account with both long and short positions, total equity is the sum of long-side equity (LMV − debit) and short-side equity (credit − SMV).
- Long equity = LMV − debit balance
- Short equity = credit balance − SMV
- Combined equity = sum of both sides
Memory trick: Long side: value minus debt; Short side: credit minus value — add them together.