What is wrong with the following statement: Only a fool would invest in real estate without financing most of the purchase with a mortgage; borrowing allows you to increase your expected return by using other people's money!
A) The money you borrow comes from a bank, not "other people".
B) The statement is insulting to fools: even people of just slightly below average intelligence might not borrow.
C) Some people can't borrow due to poor credit rating, but that doesn't mean they're "fools".
D) The statement ignores the effect of borrowing on the investor's risk.
E) The statement is actually correct although stated in a too extreme form.

Question

Quizplus · Accepted Answer

The statement overlooks the increased risk that comes with leveraging an investment through borrowing, which can amplify losses as well as gains.

What Is Wrong with the Following Statement: Only a Fool