Buying stock on margin allows investors to increase the potential rate of return made on a stock investment.

Question

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Buying stock on margin involves the purchase of stock with funds borrowed from the brokerage firm. An investor buying on margin is effectively using someone else's money to make money. If the value of the stock purchased increases, the investor benefits from investing money at a higher rate of return than the cost of borrowing the money. (This is called favorable leverage.)

Buying Stock on Margin Allows Investors to Increase the Potential