Asked by Jamie PARKER on May 10, 2024

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Leverage _____ the return to shareholders and _____ the risk of their investment.

A) lowers; lowers
B) lowers; increases
C) increases; lowers
D) increases; increases

Leverage

Increasing the rate of return on funds invested by borrowing funds.

Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment’s cost.

Risk

Uncertainty about loss or injury.

  • Understand the concept of leverage and its effects on shareholder returns and investment risk.
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Verified Answer

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Final Answer :
D
Explanation :
Leverage increases the return to shareholders by allowing them to invest less capital for a potentially higher return. However, it also increases the risk of their investment because if the investment does not perform well, the losses are magnified.