All other things being equal,which of the following best describes the effects of leverage on an investment's risk-return characteristics (assuming the expected return is greater than the lending rate)?
A)Lower expected return,lower risk
B)Lower expected return,higher risk
C)Higher average return,higher risk
D)Higher average return,lower risk
E)Risk-return characteristics have no role in investment decision making

Question

Quizplus · Accepted Answer

Leverage amplifies both potential returns and potential risks because it involves borrowing money to invest, aiming to earn more than the cost of borrowing. If the expected return is greater than the lending rate, leverage can lead to a higher average return but also increases the risk, as both gains and losses are magnified.

All Other Things Being Equal,which of the Following Best Describes