If an individual buys stock on margin and its price rises,
the investor
A. must put up additional collateral.
B. must pay tax on the unrealized gain.
C. must pay interest on the borrowed funds.
D. may take delivery of the stock.
I think the answer is C because if you gain or lose, you still have to pay interest
Correct, the answer is C. If an individual buys stock on margin and its price rises, the investor must pay interest on the borrowed funds. Buying stock on margin means borrowing funds from a brokerage firm to purchase the stock. Interest is charged on the borrowed amount, and regardless of whether the stock price rises or falls, the investor is still required to pay the interest on the loaned funds.
You are partially correct. The correct answer is C. If an individual buys stock on margin and its price rises, the investor must pay interest on the borrowed funds.
When an investor buys stock on margin, it means they are borrowing money from a brokerage firm to purchase the stock. The investor is required to provide a certain percentage of the total purchase price as collateral (known as the margin requirement), and the remaining amount is borrowed from the brokerage firm.
In this scenario, if the price of the stock rises, the investor benefits from the increase in the stock's value. However, regardless of whether the stock price rises or falls, the investor is obligated to pay interest on the borrowed funds. This interest is typically charged based on the amount borrowed and the prevailing interest rates.
Therefore, when the price of the stock bought on margin rises, the investor does not have to put up additional collateral (option A) or pay tax on the unrealized gain (option B). Also, taking delivery of the stock (option D) refers to physically receiving the stock certificates, which is not directly related to the situation of buying stock on margin.