An investor can create the effect of leverage on his/her account by:
i.buying equity of an unlevered firm; II)investing in risk-free debt like T-bills; III)borrowing on his/her own account
A)I only
B)II only
C)III only
D)I and III only

Question

Quizplus · Accepted Answer

Buying equity of an unlevered firm does not create leverage. Investing in risk-free debt like T-bills also does not create leverage. However, borrowing on one's own account creates leverage by increasing the potential return on investment, as the borrowed funds can be used to invest in assets that offer a higher return than the cost of borrowing. Therefore, options I and III are the only choices that can create leverage.

An Investor Can Create the Effect of Leverage on His/her