The smaller the fraction of an investment financed by borrowing
A)the greater the potential return and potential loss on that investment.
B)the smaller the potential return and potential loss on that investment.
C)the greater the potential return and the smaller the potential loss on that investment.
D)the smaller the potential return and the greater the potential loss on that investment.

Question

Quizplus · Accepted Answer

The smaller the fraction of an investment financed by borrowing, the smaller the potential return and potential loss on that investment. This is because when an investment is financed by borrowing, a portion of the returns go towards paying off the debt, which can limit potential gains. Additionally, if the investment performs poorly, the borrower may still be responsible for repaying the debt, which can result in significant losses. By financing a smaller fraction of the investment through borrowing, there is less risk and potential for loss.

The Smaller the Fraction of an Investment Financed by Borrowing