If you opt to purchase shares of stock on margin rather than with cash, you will:
A)decrease your maximum potential rate of return.
B)increase your maximum potential rate of return.
C)guarantee yourself a profit.
D)eliminate any potential profit.
E)have equal rates of return regardless of how the purchase is made.

Question

Quizplus · Accepted Answer

Purchasing shares on margin means borrowing money to buy more shares than you could with just your available cash. This leverage amplifies your potential returns because you are investing more money into the market. However, it also increases your risk, as losses can be magnified. There's no guarantee of profit (eliminating C), and potential profit is not eliminated (eliminating D). The rate of return is not equal to purchasing with cash (eliminating E), and it's not decreased but increased due to leverage (eliminating A).

If You Opt to Purchase Shares of Stock on Margin