Which of the following statements is not true about trading on the equity?
A)It can become a disadvantage to a corporation.
B)It is another phrase for financial leverage.
C)It will increase the number of shares of stock owned.
D)It will increase the interest a corporation must pay.

Question

Quizplus · Accepted Answer

Trading on the equity refers to the use of fixed-interest bearing debt (such as bonds) and preferred stock to increase the returns to the common shareholders. It does not involve increasing the number of shares of stock owned; rather, it involves increasing the corporation's debt to leverage the equity investment.

Which of the Following Statements Is Not True About Trading