Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."

Question

Quizplus · Accepted Answer

This statement is true. "Trading on the equity" refers to the practice of using debt to finance investments or operations in order to increase the potential return on equity for shareholders. However, this also increases the risk and potential losses for the company and its shareholders.

Using Borrowed Money to Increase the Rate of Return on Common