Beta And The Cost Of Margin
What is the cost of using margin in an account to boost returns by boosting beta? In a margin account you can borrow up to 50% of the purchase price of marginable assets. This allows investors to potentially double the amount of assets they could buy. The risk free rate of return is currently very close to zero (around 0.75%). In theory you could use margin to boost beta to nearly 2.0 and thereby boost your expected return. The biggest problem with this plan is that the co