If You Buy 100 Shares of IBM for $120/share, and the Margin

question 269

True/False

If you buy 100 shares of IBM for $120/share, and the margin on your account is 50%, the broker will float you an interest-free loan of $6,000, until the price of IBM sufficiently rises to the point where you are willing to sell. You pay the broker back its $6,000, and you enjoy the capital gain.

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Definitions:

Ownership Transferable

A characteristic of property rights or shares that allows them to be passed from one individual or entity to another.

Limited Liability Company

An enterprise structure that fuses the tax handling advantages of partnerships or sole proprietorships with the limited liability feature of corporations.

Corporation

A legal entity that is separate and distinct from its owners, who are shareholders. Corporations enjoy many of the rights and responsibilities that individuals possess.

Corporate Double Taxation

A tax principle where a corporation's income is taxed at both the corporate level and again as shareholder dividends at the personal level.