Which one of these statements is correct?

Question

Quizplus · Accepted Answer

Financial leverage refers to the use of debt by a firm to finance its operations. This will increase the fixed costs of finance, which in turn will impact the equity of the firm. The other statements are incorrect. The asset beta will generally be different from the equity beta for a levered firm, as leverage will affect the risk profile of the assets. Leverage can increase or decrease the asset beta, depending on the degree of leverage used. A portfolio beta is not simply the summation of the betas of the individual securities held in the portfolio, as the weights of each security also need to be taken into account. Finally, the equity beta can refer to the beta of a firm with any level of leverage, not just an all-equity firm.

Which One of These Statements Is Correct