If an individual wants to borrow with limited liability, he/she should
A)invest in the equity of an unlevered firm.
B)borrow on his/her own account.
C)invest in the equity of a levered firm.
D)invest in a risk-free asset like T-bills.

Question

Quizplus · Accepted Answer

Investing in the equity of a levered firm allows an individual to benefit from the use of debt (leverage) while maintaining limited liability. The liability of equity investors is limited to the amount they have invested in the firm, protecting their personal assets beyond their investment in the event of the firm's financial distress.

If an Individual Wants to Borrow with Limited Liability, He/she