Question

If an individual buys stock on margin and its price rises, a. the investor must pay...

  1. If an individual buys stock on margin and its price rises,

a.

the investor must pay tax on the unrealized gain.

b.

the investor must put up additional collateral.

c.

the investor may take delivery of the stock.

d.

the investor must pay interest on the borrowed funds.
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Homework Answers

Answer #1

When the individual will be buying the stock and the stocks will be bought on the margin, and then the stock price will be going up,the investor will be paying interest on the borrowed funds because margin is just like a credit facility so he will be paying interest on the borrowed fund which will be reducing his overall gaines.

Other options are incorrect because he will not be having to pay tax on the unrealized gains and he will be not putting up additional collateral and he should not take delivery of the stock.

Correct answer will be option ( d) the investor must pay interest on the borrowed funds.

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