FINRA Series 7Processes and Confirms TransactionsEasy
A client has a margin account with a long market value (LMV) of $20,000 and a debit balance (DR) of $12,000. What is the current equity in the account?
- A$20,000
- B$8,000
- C$12,000
- D$32,000
Show answer & explanationAnswer & explanation
Correct answer: B. $8,000
Equity in a long margin account is calculated as the Long Market Value (LMV) minus the Debit Balance (DR). In this case, $20,000 (LMV) - $12,000 (DR) = $8,000 in equity.
Why the other options are wrong
- A. This is the Long Market Value, not the equity.
- C. This is the Debit Balance, not the equity.
- D. This is the sum of LMV and DR, which is not the correct calculation for equity.
Long Margin Account Equity
The customer's ownership interest in a long margin account, representing the value of securities minus the amount borrowed.
- Calculated as Long Market Value (LMV) - Debit Balance (DR).
- Must meet minimum maintenance requirements to avoid a margin call.
- Increases with rising stock prices, decreases with falling stock prices.
Memory trick: LMV minus DR, that's your equity star!