Could any problems arise from this??

I'm connecting my iMac to my stereo thorough a mini jack to RCA Audio cable. (Is this clear??) If it is, is there any possibility of damaging the stereo or the imac if say, I set the imac's volume all the way up and the stereo's very low, or vice versa?

I really don't think there will be a problem... It simply means that you have 2 volume controls: 1 at the imac and the other at the stereo.
The only problem you could run into is overloading your speakers by having both volumes all the way up and a really loud song on... even at that, I doubt you'd run into any problems.

I agree with thedspeth, you are not going to damage either. You may get slightly better sound quality by turning the output of the mac up more than trying to amplify a weak signal coming into the stereo.

thanks for the replys

I have pretty much the exact same setup, have had it for 5 or 6 years now, no issues.

Shouldn't be much harm.
But i've never thought of that idea.