Buying stock on margin allows an investor to borrow funds from the brokerage company as part of the transaction. This ________ the potential return to the investor and ________ the risk.

Question

Quizplus · Accepted Answer

The leveraging of an investment by the use of borrowed funds can greatly exaggerate the percentage of profit or loss. As the risk/return trade-off indicates, the possibility of a greater rate of return is accompanied by a greater potential for loss.

Buying Stock on Margin Allows an Investor to Borrow Funds