If the initial margin requirement is lowered, the margin investor will

Question

Quizplus · Accepted Answer

Lowering the initial margin requirement means that the margin investor can borrow more money to make investments. This leads to an increase in leverage and therefore increases the potential rate of return, but also increases the volatility of the potential rate of return. Therefore, the correct answer is D. Choice A and B are not directly related to margin requirements and choice C is incorrect as the investor can borrow more dollars with a lower margin requirement.

If the Initial Margin Requirement Is Lowered, the Margin Investor