Wasteoftime

it may earn the risk free rate, but when you buy on a margin you measure the returns on your original investment, not your total portfolio value.

example

I run a hedge fund worth 100. I take out 300 of debt. total value is 400. I earn 5% over the course of 1 year. my total value is 420. pay back the 300 of debt and I have 20 left over (maybe a little less for interest payments, etc). thats a 20% return on my original 100 investment, not bad.