smuggycfa

pedpenny Wrote:
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> a profit. The after interest return is then 1.88%,
> which is still a positive return


I agree that if you *lock in* any rate *above* the avaiable rate, that would be a risk-free profit. But i'm not sure the above situation is risk-free.

Here is another more basic problem as an example. You borrow $100k from your broker at 9% interest. You buy IBM shares. A year later you sell IBM for $110k. You pay back the broker $109k, and you pocket $1000.

Was that risk-free? Of course not.
Did you earn a higher rate than a bank CD (of say 3%)? Well, what was your return? It's not $1000/0=infinity! Your return is $1000/$100k= 1%. An investment of $100k turned into $101k.