Question

_______ is a term used to describe the magnification of risk and return introduced through the use of fixed-cost financing, such as preferred stock and debt.

a) Benchmarking
b) Operating leverage
c) Fixed-payment coverage
d) Financial leverage

Answer 1

D Financial leverage

Answer 2

D. Financial leverage

Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets.