How can you calculate excess equity in a margin account?

To calculate excess equity in a margin account, you need to understand the relationship between the equity in the account and the requirements set by Regulation T (Reg T), which is the Federal Reserve Board's regulation that governs the amount of credit that brokers and dealers can extend to customers for the purchase of securities.

Excess equity is derived by taking the current equity in the margin account and subtracting the amount that must be maintained according to Reg T. Essentially, it reflects the portion of equity that exceeds the required minimum set by the regulation.

Thus, when you take "new equity"—which typically refers to the current value of the account equity—and subtract the required margin as set by Reg T, you arrive at the excess equity. This calculation helps traders and investors assess how much equity they have over the minimum stipulations, allowing them to understand their financial position in the margin account more clearly and make more informed trading decisions.

Therefore, the correct approach to calculating the excess equity involves subtracting Reg T from the current equity, which aligns with the answer provided.