Which of the following statements is true?
A) Leverage increases expected return and increases risk.
B) Leverage increases expected return and reduces risk.
C) Leverage decreases expected return but has no effect on risk.
D) Leverage decreases expected return and increases risk.

Question

Quizplus · Accepted Answer

Leverage involves using borrowed money to increase the potential return of an investment. While it can indeed increase the expected return, it also increases the risk because if the investment does not perform as expected, the losses are magnified due to the borrowed funds that need to be repaid.

Which of the Following Statements Is True