Question

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.

Answer 1

The correct answer is A) investors purchased the stocks with little cash down.

Stock bought on margin was considered a risky investment because investors purchased the stocks with little cash down.

If investors buy stock with little cash, it is considered a risky investment in that if the price of the stock drops, it has to repay the loan. Of course, the investor is thinking that if the investment is high-risk, the return is going to be more attractive. But the risk part comes when this is not the case and the investor does not have enough money to pay the debt.

Answer 2

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

Choice A is correct

Step-by-step explanation:

Stocks bought on margin were considered a risky investment because investors purchased the stocks with little cash down; if the price dropped the investor had to repay the loan. An investor is able to purchase stock worth 20000 with just 2000 using margin.