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

Question

Quizplus · Accepted Answer

Investing in the equity of a levered firm (I) can help an investor undo the effect of leverage as the firm takes on the leverage risk as opposed to the investor. Investing in risk-free debt like T-bills (III) can also help as it provides a steady return without leverage risk. However, borrowing on one's own account (II) would only add more leverage risk and is not a solution to undo the effect of leverage.

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