Leverage increases the total size of the gain or loss from an investment, not just the percentage rate of return on the part of the investment amount that was not borrowed

Question

Karma Krueger

Business

24 December, 22:23

Leverage increases the total size of the gain or loss from an investment, not just the percentage rate of return on the part of the investment amount that was not borrowed

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Abbigail Barr · Answer 1

Given statement is True that Leverage increases the total size of the gain or loss from an investment, not just the percentage rate of return on the part of the investment amount that was not borrowed

Explanation:

Leverage means using borrowed funds if one wants to buy a portion of the securities in a portfolio. This increases the return on investment.

If the return on investment is 'greater' than the cost of the funds that are borrowed then the investor is greatly affected. Leverage is profitable when the earnings are greater than the cost of borrowing.

But, leverage may fail in case returns are less than the borrowing costs. Leverage would bring both good and bad results. Thus, the given statement which says that leverage would increase either loss or gain from an investment is correct.