What is the SMA balance if a customer's stock increases in value to $70,000 and the debit balance is $30,000?

To calculate the SMA (Special Memorandum Account) balance, you first need to understand that SMA represents the equity that can be used by a customer for various purposes, including buying additional securities or withdrawing cash. It is determined by the current market value of the securities and the debit balance in the margin account.

Here, the customer's stock value has increased to $70,000, and the debit balance is $30,000. The equity in the account is calculated by subtracting the debit balance from the value of the securities:

Equity = Market Value of Securities - Debit Balance

Equity = $70,000 - $30,000

Equity = $40,000

The SMA balance is calculated based on the equity and is often determined in relation to the initial margin requirements. Typically, the SMA balance is seen as a portion of the equity that exceeds the required maintenance margin. This surplus equity can be thought of as available funds or credits for future transactions.

In this case, the growth in the stock value to $70,000 increases the customer’s equity significantly, implying that the SMA would also correspond to the higher value as it reflects the customer's ability to leverage or use additional margin.

While the exact SMA balance derives from specific margin trading