Financing a portion of a firm's assets with securities bearing a fixed rate of return in hopes of increasing the return to stockholders refers to
A) business risk.
B) financial leverage.
C) operating leverage.
D) combined leverage.

Question

Quizplus · Accepted Answer

Financing a portion of a firm's assets with securities bearing a fixed rate of return is known as financial leverage. This is done in the hopes of increasing the return to stockholders, but it also increases the risk of loss. This is because the fixed rate of return must be paid out to the holders of the securities regardless of the firm's profitability.

Financing a Portion of a Firm's Assets with Securities Bearing