Why was stock bought on margin considered a risky investment?

A: Investors purchased the stocks with little cash down; if the price dropped the investor had to repay the loan.

B: Stocks purchased on margin were often for companies that had little or no value.

C: Investors paid high interest rates to buy these stocks; they needed a substantial return to make money.

D: If the value of the stock declined, brokerages were responsible for the loss.

Question

Kylie Allen

Business

30 January, 03:34

Why was stock bought on margin considered a risky investment?

A: Investors purchased the stocks with little cash down; if the price dropped the investor had to repay the loan.

B: Stocks purchased on margin were often for companies that had little or no value.

C: Investors paid high interest rates to buy these stocks; they needed a substantial return to make money.

D: If the value of the stock declined, brokerages were responsible for the loss.

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Answers (1)

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Brian · Answer 1

Stock bought on margin considered a risky investment because investors purchased the stocks with little cash down; if the price dropped the investor had to repay the loan. In investment the higher the risk the higher the return, it will be beneficial for the investors but more risky.